Fund Focus: Caledonia investment trust

By Richard Dyson
Updated: 04:31 EDT, 14 September 2009

Each week, Financial Mail focuses on a top-performing fund and whether it's right for you: Caledonia investment trust

Increasing the dividends it pays to shareholders and beating the stock market over rolling five and 10-year periods are the aims of Caledonia, a unique, £910m investment fund.

It has met its goals with admirable consistency. Dividends have risen for 42 consecutive years and over the past 10 the trust has outperformed the FTSE All-Share index by more than 150 percentage points.

Caledonia is an investment trust, making it a company in its own right, quoted on the market.

But unlike most trusts, which contract out their fund management, Caledonia employs its own managers.

However, its greatest distinction is its manner of investing. It buys significant chunks of businesses - 10% to 20% - and maintains these stakes for the long term, on average 11 years.

As a condition of its involvement, Caledonia takes a board seat on any company it backs. Today it has about 35 holdings. Chief executive Tim Ingram calls this 'following your own money'.

The process is similar to private equity investing, where support is provided to fledgling firms. But in Caledonia's case, most investments are in companies that are already big.

Geographic regions or industry sectors are not as significant as the quality of a business's management and its price. Ingram says: 'It's people running companies who make money, not the companies.' There are caps in place to limit the fund's overall exposure to individual sectors.

Caledonia is quirky in that 46% is owned by the Cayzer family, whose wealth comes from shipping during the Empire. The fund's riskrating, as assessed by trust analyst WINS, is 'slightly above average'.