"The six month returns now look good relative to the peer group and when this improvement is recognised by the market there may be some positive discount re-rating," Oriel's analyst Iain Scouller said.
Performance of Caledonia Investments vs sector and index over 6-mths
Source:Financial Express Analytics
Financial Express data shows the trust underperforming its IT Global Growth and FTSE All Share index over the long term, both three and five years, but that performance is starting to turn around of late. Caledonia Investments was trading at a discount to net asset value (NAV) of 21 per cent as of 13 October.
Performance of Caledonia Investments vs sector and index over 1-mth
Source:Financial Express Analytics
Scouller said: "The discount has drifted out partly due to the fact that Caledonia’s performance has lagged relative to some other international trusts. There may also be some nervousness over the valuation of the unquoted investments."
He added: "However...the unquoted portfolio revaluation has already been completed and included within the NAV which was announced in early October."
The company’s NAV has risen by 8.8 per cent in the past year, coming in just behind the 10.8 per cent rise in both the FTSE All Share Index and an identical 10.8 per cent rise in the sector average, according to Oriel. Scouller says Caledonia’s exposure to unquoted investments, which makes up around one third of its assets, is to blame for the lag.
The trust is better value than RIT Capital, Oriel says, a company which has a similar equity holding to Caledonia, and also mirrors its hedge fund and property holdings.RIT Capital was trading at a premium of four per cent as of 13 October.
"We don't think that this 25 percentage point differential in discount ratings between these two funds is justified and suggest a switch from RIT Capital into Caledonia for investors who want to increase their exposure to UK investments," Scouller said.