Amid all the doom and gloom Caledonia Investments (CLDN ) has reported decent results for the 12 months to 31 March that has left its market valuation nudging £2bn.

Over the year the global multi-asset trust generated a total underlying investment return of 27.9%. Despite its broad remit, the board prefers to compare returns to UK inflation and the FTSE All-Share index rather than a global benchmark such as MSCI World. Even with inflation as elevated as it is, Caledonia’s returns have been well-ahead of both RPI and CPI which hit 11.1% and 9% respectively last month.

Over 10 years to the end of March, the total return on net assets has been 215%, or 12.2% per annum, which compares to annualised inflation of 3% over that period.

The UK stock market return over the financial year was 13%, lagging the 15.4% from the MSCI World Index. Nevertheless, Caledonia beat both handsomely.

Over 10 years, while it is well-ahead of the All-Share, Caledonia fails to beat the MSCI World. The annualised return on the All-Share was just 7.2%, whereas the equivalent return on the MSCI World Index was 13.1%. However, I think that is still a good result; Caledonia is explicitly not a global equity fund. In fact, it ranks as the second-best performing fund in both share price and net asset value (NAV) terms within its AIC Flexible Investment peer group.

It aims to hold 35%-50% in shares, and within that includes some higher-yielding equities to support its revenue account. Between 35%-45% of the portfolio is allocated to private capital, with a bias to unquoted mid-market companies in the UK. Finally, 20%-30% is invested in US and Asian private equity funds and funds of funds.

Over 10 years it is the funds portfolio that has produced the best returns at an average of 17.8% per year, while the income equities are the laggard with just 6.7%. The private capital investments beat the listed ones, underscoring the attraction of having some exposure to this area.

However, it is the private capital allocation that usually takes the blame for the trust’s low rating, with the shares currently standing 28.5% below their NAV. I think this excessive discount is unjustified.

Two sizeable disposals from the private capital portfolio made a significant contribution to recent outperformance. Deep Sea Electronics, acquired in 2018 for £117m, was sold in June 2021 for £242m; and a stake in BioAgilytix, sold in December 2021 for $183m after it was bought for £23m in February 2019. The buyer of BioAgilytix was a consortium of private equity investors led by Cinven. Caledonia decided to reinvest $42m into the business alongside them.

Today, the largest positions in the private capital portfolio are Seven Investment Management, Cobehold, Stonehage Fleming, Liberation Group and Cooke Optics. Between them, they account for just over a quarter of the entire portfolio.

Seven’s results for 2021 were announced on 24 May; assets under management rose by £3bn to £21bn and revenue increased by 32%. Brooks Macdonald is said to have offered £300m for the business last year. Seven won’t be immune to recent market falls but it should have fared better than average given its relatively conservative investment ethos.

Cobehold/Cobepa is a Belgian investment company with several private investments which introduced BioAgilytix to Caledonia. Stonehage Fleming is a family investment office with over $75bn under management/administration. Caledonia bought a 35% stake in the business in 2019. Liberation Group is a pub company with breweries in Bristol and the Channel Islands. Leicester-based, Cooke Optics makes lenses used in film cameras. Its business was hit hard by Covid but has recovered strongly since and Caledonia is sitting on a modest profit on its £97m investment.

With a significant exposure to UK equities and relatively low exposure to Europe and Asia, the equity portfolio bears little resemblance to those of other global investment trusts. The listed equities portfolio includes well-known names such as Microsoft and Oracle, but the largest investment at end March 2022 was Watsco, an American distributor of air conditioning, heating and refrigeration products.

Caledonia’s yield is fairly modest, but it is a ‘dividend hero’ of the Association of Investment Companies (AIC) with a 55-year track record of increasing its pay-out each year. This year it has also opted to pay a chunky 175p special dividend on top of its 64.8p normal dividend for its last financial year. The decision to pay the special dividend was linked to the profitable exits from Deep Sea Electronics and BioAgilytix.

The size of those dividends in pence per share is reflective of a share price of over £36. I think the trust would benefit from a share split. Otherwise, however, the only real criticism is the size of the discount.

The Cayzer family control about 48% of the share register, and therefore there is no hope of anyone imposing measures to tackle the discount on the board. However, it did authorise buybacks totalling £24m over its last financial year.

An enhanced dividend might help kindle more interest in the trust. The results statement noted that, with this year’s special dividend, shareholders have received a yield of about 3% on a ten-year basis. Replacing occasional special dividends with a regular enhancement to income might attract more investors.

Otherwise, perhaps the trust needs to spend more on marketing. I have the feeling that despite its size, it is not particularly well known.

James Carthew is a director at Marten & Co. Any opinions expressed by Citywire, its staff or columnists do not constitute a personal recommendation to you to buy, sell, underwrite or subscribe for any particular investment and should not be relied upon when making (or refraining from making) any investment decisions. In particular, the information and opinions provided by Citywire do not take into account people’s personal circumstances, objectives and attitude towards risk.