The Law Debenture Corporation (LSE: LWDB) is not your average investment trust. As the name suggests, this is an investment entity for the Law Debenture business, a group of financial services businesses which offer various different corporate and institutional services in the UK, Hong Kong, US and Ireland.
It has the single goal of achieving long-term capital growth at a rate higher than the total rate of return from the FTSE Actuaries All Share Index by investing in a geographically diversified portfolio. Not only has it met this goal, but it has nearly doubled its benchmark return over the past 10 years.
According to the full-year 2017 annual report, over the past decade, Law Debenture has produced a total return for investors of 154%, compared to the FTSE Actuaries All-Share Index total return of 85% over the same period. The performance has also exceeded that of its global peer group, which produced a total return of 137% over the past decade.
Multiple income streams
It derives its income not only from investments, but also professional services provided by the wider group, giving it an edge over the rest of its investment trust peers. It also means the company is globally diversified across business lines, so it should be able to continue to produce positive returns even if markets tank.
However, despite this advantage, and the trust’s positive performance over the past decade, the shares currently trade at an 11% discount to the reported net asset value of 670p per share. As well as this discounted valuation, the shares support a dividend yield of 2.9%, which is less than the wider market, but considering the firm’s record of capital growth, I’m happy to overlook the lack of income.
To add to the trust’s appeal, it only charges 0.43% per annum and there’s no performance fee levied on top.
Private investing
Law Debenture’s performance history, diversified income stream and low charges show clearly that the trust is working to achieve the best returns for investors, and the same can be said for Caledonia Investments (LSE: CLDN)
Caledonia is another business that invests outside of the public markets to achieve the best returns for investors. The group owns stakes in bingo operator Gala Bingo, pub company Liberation and recently raised £80.2m from the sale of the Sloane Club, a private members club in London.
Its returns are not as high as those of Law Debenture, which can be blamed, to a certain extent, on its business model. Indeed, it usually takes longer to realise value from private investments rather than those in the public equity markets as there’s no daily price for the assets. It can take several years for asset sales to be crystallised. Nonetheless, the trust has still produced an annualised 13% over the past five years, beating the FTSE All-Share by 3% per annum over the same period.
And investors can currently snap up shares in this private equity business on the cheap. The last reported net asset value was 3,311p, around 20% above the current market price. As well as this discount, the stock also supports a dividend yield of 2%.
