Few investment trust discounts are as stubborn as the one that has clung like a limpet to shares in Caledonia, the multi-asset fund tipped by this column almost four years ago. Then, we highlighted Caledonia's 18pc discount, which belied its elite status as one of just four trusts to have grown its dividend for 50 consecutive years. Now, even though it has lengthened that record to 53 years, the discount has widened to 25pc.
The past month provides the perfect illustration of Caledonia's struggle to ignite enough excitement for its shares among a wider fan base. Three weeks ago the trust reported a net asset value of GBP39.40 per share for the end of March, a rise of 14pc on February's figure, reflecting its biannual revaluation of unquoted investments. The result?
A widening of the discount, as the shares' 9pc rally lagged the rise in NAV. The performance of the GBP1.6bn trust, set up in 1960 to manage the assets of the Cayzer shipping dynasty, does not explain such a wide discount. Long-term returns, though not spectacular, have been solid: over 10 years the shares have risen by 115pc, ahead of the 81pc return from the FTSE All-Share index used by the trust as a benchmark.
Since our tip four years ago the shares have gained just 2pc, although that is at least ahead of the 4pc loss for British stocks over the same period. Tony Yarrow, who has held the trust since 2006 in his Wise Multi-Asset Growth fund, believes Caledonia suffers because of its idiosyncratic nature. "It's not an easy thing to pigeonhole and people like things that are nice and simple," he said. "You've got to work a little bit harder to understand what they are doing."
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Mr Yarrow said the trust was best understood as a private equity fund. Its assets are split into three parts: quoted stocks, unquoted firms and funds, each accounting for roughly a third of the portfolio.
The funds it holds, however, are themselves invested in unquoted companies, mainly in America and Asia. Together with Caledonia's direct private investments, principally in five British firms and one Belgian company, private firms account for 65pc of the trust's assets. All portions of the fund did their bit towards its 24pc NAV return over the 12 months to the end of March.
The quoted stocks and private equity funds delivered just over 30pc, while the directly held unquoted investments gained 21.8pc, even after the disposal of Buzz Bingo, hit by venue closures in the lockdown, for a nominal sum. The Cayzer family retains nearly half the trust's shares and this adds to Caledonia's appeal for Mr Yarrow. "We like family companies because on the whole they are managed responsibly for the long term and they tend not to take risks," he said. "Several friends have approached me in the past few weeks to ask where they should invest their child's Isa and I've said Caledonia.
If you are prepared to wait five to 10 years, I can't see it letting you down." All of this is well and good, but it isn't doing much to shift the wide discount that initially attracted this column to the shares and has only widened since. Mr Yarrow struggled to identify a catalyst, but neither did he see any reason to sell shares he has owned for his investors for 15 years.
"It hasn't mattered because the NAV has grown steadily over the years and the price has risen along with it," he said. "The discount is a nice little comfort that's tucked away in the share price: the knowledge that at some point the market may warm to this thing." Questor says: hold Ticker: CLDN
Share prices at close: GBP29.50Caledonia Investments key facts
Update: AEW UK Reit
Questor has enjoyed a much more immediate vindication of its stance on AEW UK Reit, labelled a buy last year when the shares traded at a yield of 11pc, helped by a discount of 22pc. Now that discount is less than 5pc as the market has come round to our view that the trust's targeted 8p in annual dividends is safe. The shares were helped along their way by the trust's court victory last week in its fight for unpaid rent from a Sports Direct store in Blackpool and a Mecca Bingo hall in Dagenham.
AEW said the total rent due since it made the claim stood at GBP1.2m, which will raise the dividend cover. Hold.
Questor says: hold Ticker: AEWU
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