Essential Investment Trusts

[Dod101]

I must say I am surprised that otherwise rational posters are deliberately finding fault with Caledonia. As I have said earlier in this thread, Caledonia has done me very well over the last 30 years. There are no surprises, often, as this year, a special dividend and a very conservatively run IT. The big discount has been explained again and again and frankly if you buy it at the big discount it simply does not matter, and there is always the possibility that someday it might be taken private at something nearer the NAV.

Oh and the problem with Woodford's IT is that he deliberately loaded it with dubious private equity transferred from his OEIC. To even mention the Cayzers in the same post as Woodford shows how little some know of Caledonia and the Cayzer family which controls it.

However, no matter. I will continue to enjoy the expertise and connections of the Cayzers. Others will do as they like.

Dod

[SalvorHardin]

Caledonia holding investments in the Channel Islands isn't remotely like what Woodford did.

This is not entirely correct. Why are the Channel Islands chosen? - presumably because they are not subject to the stricter regulations in the UK.
And as for Woodford's OEIC - it did substantially better than his IT. So much for the "protection" of his closed end fund - it was the big disaster.

There might be some tax advantages for being in the Channel Islands (I can't say more as I don't know). What I do know is that it's much easier to distribute capital from a Jersey based investment than from a UK based investment. Also it doesn't hurt to keep some money offshore out of the clutches of a future Labour government.

Woodward's closed end fund was stitched up by being used to buy unquoted assets from the OEIC to bail it out (this was seriously dodgy and not done at arms length). Then the OEIC dumped its holding in it. Then the discount widened.

[Lootman]

Caledonia holding investments in the Channel Islands isn't remotely like what Woodford did.

This is not entirely correct. Why are the Channel Islands chosen? - presumably because they are not subject to the stricter regulations in the UK.
And as for Woodford's OEIC - it did substantially better than his IT. So much for the "protection" of his closed end fund - it was the big disaster.

There might be some tax advantages for being in the Channel Islands (I can't say more as I don't know).

I don't know for sure either. But investment trusts are companies and so are liable for UK corporation tax. That can be avoided by domiciling elsewhere.

It used to be that funds with a lot of overseas income would suffer lower internal taxation if registered in the CI. So for example some of the ITs specialising in Asian Income moved to the CI. Not sure if that still holds true though.

Also I notice that I don't have to pay stamp duty when buying some CI ITs.

[Dod101]

Caledonia holding investments in the Channel Islands isn't remotely like what Woodford did.

This is not entirely correct. Why are the Channel Islands chosen? - presumably because they are not subject to the stricter regulations in the UK.
And as for Woodford's OEIC - it did substantially better than his IT. So much for the "protection" of his closed end fund - it was the big disaster.

There might be some tax advantages for being in the Channel Islands (I can't say more as I don't know).

I don't know for sure either. But investment trusts are companies and so are liable for UK corporation tax. That can be avoided by domiciling elsewhere.

It used to be that funds with a lot of overseas income would suffer lower internal taxation if registered in the CI. So for example some of the ITs specialising in Asian Income moved to the CI. Not sure if that still holds true though.

Also I notice that I don't have to pay stamp duty when buying some CI ITs.

Yes but most of the profits of an IT are capital gains which are free from any form of tax so their liability to corporation tax is usually fairly modest.

Dod

[scotia]

I must say I am surprised that otherwise rational posters are deliberately finding fault with Caledonia.

The title of the discussion is "Essential Investment Trusts". I cannot find any rationale to describe Caledonia as Essential.

[scotia]

Woodward's closed end fund was stitched up by being used to buy unquoted assets from the OEIC to bail it out (this was seriously dodgy and not done at arms length). Then the OEIC dumped its holding in it. Then the discount widened.

Yes - that happened. I believe the dumping of the unquoted assets was required by the OEIC management conditions, but there was no such limitation on the IT management. So which is the safer structure - OEIC or IT?

[Dod101]

I must say I am surprised that otherwise rational posters are deliberately finding fault with Caledonia.

The title of the discussion is "Essential Investment Trusts". I cannot find any rationale to describe Caledonia as Essential.

It all depends on what we mean by Essential (with a capital E) I would have seen Caledonia as a very desirable part of a general portfolio, whether Essential or not, I do not know.

Dod

[Dod101]

Woodward's closed end fund was stitched up by being used to buy unquoted assets from the OEIC to bail it out (this was seriously dodgy and not done at arms length). Then the OEIC dumped its holding in it. Then the discount widened.

Yes - that happened. I believe the dumping of the unquoted assets was required by the OEIC management conditions, but there was no such limitation on the IT management. So which is the safer structure - OEIC or IT?

I appreciate that this question is directed at SalvorHardin but no IT (or any other company for that matter) is immune from the misjudgement of its Directors. On the whole, they do not need much regulation because they are subject to the Companies Acts. OEICs are not, but to the direction of the regulators.

Dod

[scotia]

I must say I am surprised that otherwise rational posters are deliberately finding fault with Caledonia.

The title of the discussion is "Essential Investment Trusts". I cannot find any rationale to describe Caledonia as Essential.

It all depends on what we mean by Essential (with a capital E) I would have seen Caledonia as a very desirable part of a general portfolio, whether Essential or not, I do not know.

Dod

Yes "Essential" will vary with an investor's financial circumstances. Low volatility (i.e. wealth preservation) may be essential for one investor, but high growth may be essential for another. If I were to put my personal position as in the middle, then I would be looking for ITs which (at least) keep up reasonably with a chosen Index. Currently my chosen index is a World index, which will actually be heavily weighted to the US. In the past I would have favoured the UK index, but it has now substantially underperformed the US for many years. Perhaps this will change and hopefully an IT manager will be sufficiently adept to follow the trend. So here are some of my current boring investments with their 5 year total returns (from HL tonight). I suppose I could call them my Essential investments

Fundsmith Equity (an OEIC) 68.8%
Developed World Tracker ETF (VEVE) 60%
All World Tracker ETF (VWRL) 55.8%
Mid Wynd IT (MWY) 53.2%
F&C IT (FCIT) 51.1%
Alliance IT (ATST) 47.3%
And for fun - definitely not essential, I have Scottish Mortgage (SMT) 89.3%
and Caledonia (CLDN), which I don't hold 37.8%

Looking at the trackers in this list, I'm beginning to wonder why I bother with any IT - however they may recover faster when markets begin to climb.
I should also add that although Fundsmith has clearly out-performed all of the above, over the past couple of years it has fallen behind a tracker - reverting to the norm?

Many years ago, I also included wealth preservation funds - from Troy Asset Management, but as my finances improved, there seemed little need to accept a much lower return for a lower volatility. Troy Trojan total return over 5 years is 23.5%.

[absolutezero]

I must say I am surprised that otherwise rational posters are deliberately finding fault with Caledonia.

The title of the discussion is "Essential Investment Trusts". I cannot find any rationale to describe Caledonia as Essential.

Scottish Mortgage was once essential. Now it isn't.
I started the topic so I decide 'essential' means whatever you want it to!

[absolutezero]

Looking at the trackers in this list, I'm beginning to wonder why I bother with any IT.

'Foreign' tax if held outside ISA or SIPP as most ETFs are Ireland domiciled.

[Dod101]

I must say I am surprised that otherwise rational posters are deliberately finding fault with Caledonia.

The title of the discussion is "Essential Investment Trusts". I cannot find any rationale to describe Caledonia as Essential.

Scottish Mortgage was once essential. Now it isn't.
I started the topic so I decide 'essential' means whatever you want it to!

Well OK but by your definition of essential an IT is essential only when it is rising. I doubt that any IT is essential but in a portfolio of investment trusts held for long term growth and some income I would include Caledonia without doubt because of the qualities that I have mentioned above. I would also include Scottish Mortgage.

Reverting to your original post, I would call HFEL neither essential nor desirable in any portfolio.

Dod

[absolutezero]

Reverting to your original post, I would call HFEL neither essential nor desirable in any portfolio.

Agreed!
Long since dumped.

My ITs are now:
RIT Capital Partners
F&C IT
Caledonia Investments
City of London
Yellow Cake

[brightncheerful]

A big discount isn't all that unusual for funds with lots of private equity. Also Caledonia cannot engage in large share buybacks because of the concert party ruling regarding the Cayzer family (if their collective shareholding rises above 50% then they have to bid for the entire company).

That doesn't seem to have happened at Cardiff Property Co plc whose CEO has managed to become the controling shareholder by using buy-backs to shrink the free float. Apparently, he has LSE dispensation.

Despite my intent to hold LSEG indefinitely, I have taken a small profit and bought into CLDN. i like the stability of sizeable percentage holdings as that often means that sp rises are disproportionate (the same in reverse). Having read about the recent sale of one of its investments for completion end 2023/early 2024, I reckoned that the book value of others could be lower compared to what might be obtained. Combined with the discount to NAV, I reckon good value for money.