Fund Profile

Disclaimer

Disclosure – Non-substantive Research

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour. 

Overview
The managers’ value-focussed approach and strength of stock picking has led to strong relative performance…
Overview

Ian Lance and Nick Purves formally took the helm of Temple Bar (TMPL) in November 2020 when the management contract was won by Redwheel, bringing extensive experience in UK investing and a strong track record in value-oriented strategies. Over their nearly four-year tenure managing TMPL, they've aimed to establish the trust as a go-to for value investing, centring their strategy on identifying companies they believe are undervalued by the market, trading significantly below their fair or intrinsic values. By investing in such companies for the long run, they argue it helps build in a margin of safety which can protect against unforeseen events and offer excess investment returns when the market eventually corrects these undervaluations (see Portfolio).

However, unlike traditional deep-value strategies, the managers will not entertain cheap businesses with little to no growth prospects and steer clear of those that are vulnerable to market disruptions or cyclical downturns. Their approach is selective, and whilst valuations are indeed fundamental to their stock selection process, they want companies with upside potential, demonstrating financial resilience, sustainable profitability, and the ability to consistently generate cash, which can be returned to shareholders through dividends or share buybacks. Following strong earnings growth in the first half of 2024, the board increased the second interim dividend by 20%. The shares now yield 3.6% on a historical basis.

This combination has proven a powerful source of return for investors, contributing, at the time of writing, to TMPL’s sector-leading Performance under the managers’ tenure, with particularly strong results over the past 12 months. Financials like NatWest, Barclays, and NN Group, despite being valued at depressed multiples, have remained operationally strong, consistently generated cash, and returned it generously to shareholders, ultimately boosting their share prices. TMPL’s strong relative performance has led to its Discount narrowing towards its five-year average, though it remains wider than the sector average.

Kepler View

One of the distinguishing features of TMPL is the managers’ commitment to a value-investing approach. We believe the current value dispersion in the UK market, coupled with the managers’ expertise, makes this attractive at the current juncture, and buying shares at a discount offers significant upside potential as the market corrects its mispricing over time. Moreover, combining valuation with an emphasis on quality, means the managers can identify operationally robust businesses that generate strong earnings and consistently return value to shareholders. We think this approach provides TMPL with considerable total return potential and, to date, has proven a powerful source of return, contributing to TMPL’s sector-leading Performance under the managers’ tenure.

However, some investors might be hesitant to embrace a value-oriented approach, especially given the previous dominance of growth strategies over value in the years leading up to the pandemic. Should growth strategies regain their dominance, it's likely TMPL will fall behind, a risk to bear in mind. However, the managers acknowledge that their approach isn’t designed to outperform in every market environment but rather serve a specific role within a portfolio—providing long-term investors with access to a differentiated portfolio of predominately undervalued UK businesses which have significant upside potential. We also think this makes TMPL a potentially good counterbalance to growth-heavy portfolios.

For income investors, we think the improved revenue reserves and the exposure to businesses with strong earnings potential, means the trust is on a more sustainable path for dividend growth. Overall, the managers have leveraged their experience across multiple market cycles to build a diversified portfolio of attractively valued businesses seemingly well-positioned to benefit from the catalysts driving the realisation of value in the UK.

Bull

  • Seasoned managers, experienced in value investing in the UK market
  • Wide value dispersions in the UK market should give plenty of stock-specific value opportunities
  • Relative performance has been strong under current managers’ tenure, supported by stock selection

Bear

  • Value-oriented investment approach is likely to lag a growth-driven market
  • No guarantee discount to NAV will narrow, and it could widen
  • Concentrated, high-conviction portfolio can add risk
Continue to Portfolio

Fund History

22 Jan 2025 A new Jerusalem
Dividend increases and share buybacks are good news for UK equities according to our analysts - who think those dark Satanic mills could deliver world-beating total returns...
11 Dec 2024 Are commodities hot or not?
We ask what AI and green energy mean for investments in commodities…
01 Oct 2024 Fund Analysis
The managers’ value-focussed approach and strength of stock picking has led to strong relative performance…
17 Jul 2024 Balancing act
We ask why trusts with a more flexible approach have outperformed…
11 Oct 2023 You say potato
Despite being in the same sector, investment trusts in the UK Equity Income sector could be more lowly correlated than you might think…
05 Mar 2021 Fund Analysis
TMPL’s new managers are bullish on the prospects for value…
16 Jun 2020 Factor performance and the COVID-19 effect
Will value continue to move into the black, or fade to red?
06 Nov 2019 Times are a changin'? The case for a value resurgence
We are in the midst of the longest period of value underperformance since the 1920s. Could we be approaching a change in environment?
25 Jul 2018 The Bulletproof Income Portfolio
Our Bulletproof Income Portfolio was set up to illustrate the benefits of investment trusts in providing a stable income...
23 Jan 2018 What lies beneath
Our analysis shows the majority of investors, besotted with the growth rally, are wholly unprepared for rising bond yields...
18 Jan 2018 Fund Analysis
A concentrated UK equity portfolio run by a highly-experienced manager who follows a distinctive value/contrarian approach
22 Feb 2017 Fund Analysis
21 Feb 2017 Digging in
The Bulletproof Income Portfolio enters 2017 with increased dividend cover at a time when a defensive income seems more precious than ever...
12 Jul 2016 The investment trust advantage
The UK's leading managers tell us how they use investment trusts to maximise returns...
26 Jan 2016 Fund Analysis
26 Jan 2016 Dodging bullets
The Bulletproof Income Portfolio performed well in a turbulent 2015, the perfect year to test its strengths...
05 Jun 2015 The Bulletproof Income Portfolio
Six investment trusts with income credentials to die for.
View all

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