TEMPLE (BA)R INVESTMENT TRUST: The fund poised to benefit from the UK’s recovery
Investment trust Temple Bar has had a challenging past 12 months. There has been a change of manager, a near calamitous fall in its share price, and the need to take an axe to the dividend it pays shareholders.
Yet the worst now seems over for this £690million fund that is invested in some of the most economically sensitive stocks listed on the UK stock market.
With a Brexit deal done and an end in sight to the coronavirus pandemic, co-manager Ian Lance believes the trust is ‘perfectly positioned’ to benefit from a sustained recovery in the UK economy.
Although the fund has recorded shocking one-year losses of 32 per cent, it has generated gains of 47 per cent over the past three months.
Although the fund has recorded shocking one-year losses of 32 per cent, it has generated gains of 47 per cent over the past three months.
Lance and Nick Purves, who work for RWC Partners, were appointed managers in early November last year. This was after the ‘retirement’ of long-standing manager Alistair Mundy to pursue a career in teaching.
Although Mundy’s colleagues at asset manager Ninety One temporarily took control of the fund’s reins, RWC Partners won a beauty parade organised by the trust’s board to take over as managers.
The duo have not hung around in terms of making changes to the portfolio. The number of holdings has been reduced from 50 to just 30 with an emphasis on companies with strong balance sheets.
Only two of the current top 10 holdings – oil giants BP and Royal Dutch Shell – were held by the previous managers. The result is a 48 per cent bounce back in the trust’s share price since Lance and Purves were appointed.
The fund’s overarching investment philosophy is now one of holding ‘value’ companies – businesses whose share price does not reflect their ability to generate earnings over the next few years.
The fund’s investment philosophy is now one of holding ‘value’ companies
‘We often buy companies that are experiencing difficulties,’ says Lance. ‘Their earnings may have fallen and when that happens, the market invariably over-reacts by sharply marking down their share price. What we do is look ahead and assess where their earnings could be in five years’ time. Often, that is a signal indicating a company’s share price is seriously undervalued.’
For example, Lance believes that retailer Dixons Carphone – one of the trust’s 30 holdings – has future earnings that suggest a share price nearer £2.40 than its current £1.20.
Although Lance says he is no economic forecaster, he believes the UK will experience a strong recovery this year, aided by a mix of stimulatory fiscal and monetary measures – and low interest rates.
Sectors that should do well if this is the case include banks, energy companies and retailers – all well represented in the trust’s top ten holdings.
Shareholders will be disappointed by the fund’s dividend cut that will result in annual income for the 2020 financial year of 38.5p per share (2019: 51.39p per share). But Lance says it was inevitable in light of the portfolio’s exposure to economically sensitive (‘cyclical’) stocks.
The cut was not as severe as it could have been if the trust’s board had not used some of the income reserves built over many years to ameliorate the impact of companies slashing dividends in the wake of the pandemic.
Lance is confident the dividend can start growing again. ‘We now have a fund in place,’ says Lance, ‘that provides an income equivalent to 3.7 per cent a year, has low annual charges totalling 0.4 per cent, and is poised to benefit from economic recovery.’
The abbreviated stock market code for Temple Bar is TMPL and its identification code is 08822532.