Caledonia Investments (CLDN) Investor Update summary

Investment Philosophy and Strategy

• Focus on long-term, high-quality investments targeting absolute returns above inflation by 3%-6% over the medium to long term, avoiding benchmarking and emphasizing stewardship of shareholder capital.

• Permanent capital structure enables a long-term, unconstrained approach, patient investing, and deep company relationships, with average holding periods of 7.4–8.4 years for Capital and 4.7 years for Income.

• Investment team incentives are aligned with long-term value creation, measured by NAV per share growth and rewards in shares, with over 100 years of cumulative experience fostering a research-driven culture.

• Portfolios are concentrated, typically holding 15–20 companies, constructed with a strong quality bias using a proprietary quality matrix to assess business characteristics.

• Three core strategies: Public Companies (30–40% allocation), Private Capital (25–35%), and Funds (25–35%), diversified by sector and geography.

Portfolio Management and Risk Controls

• Two global mandates: Capital (target 10%+ return, all-cap, no income requirement) and Income (target 7%+ return, 3.5% yield on cost), both managed with the same quality and risk discipline.

• Risk management focuses on company selection, position sizing (max ~10% per holding), valuation discipline, and regular top-slicing of large or highly valued positions, generating £215m for redeployment over 10 years.

• Only one or two portfolio changes are made per year, emphasizing quality improvement and long-term compounding.

• Approved and watch lists are maintained for potential investments, with purchases made only when valuation offers a margin of safety.

• Active monitoring includes regular management meetings, often outside reporting cycles, to assess progress and culture.

Performance and Portfolio Evolution

• Capital portfolio delivered a 165% cumulative return (10.2% annualized) over 10 years, exceeding targets and outperforming UK CPIH.

• Income portfolio achieved a 10-year annualized return of 4.6%, with dividend growth CAGR of 5.8%.

• Top holdings in Capital: Microsoft, Oracle, Philip Morris, Watsco, Texas Instruments; in Income: Philip Morris, National Grid, Unilever, Fortis, Watsco.

• Asset allocation between capital and income is managed to meet income needs and optimize growth, with some overlap in holdings where criteria align.

• U.S.-listed companies dominate due to scale and quality, but portfolios include global revenue streams and select Asian exposure (e.g., Alibaba).