Temple Bar 05 March 2021

Temple Bar Investment Trust (LON:TMPL) aims to provide shareholders with growth in income and capital to achieve a long-term total return in excess of the FTSE All-Share index. Following the stepping down of former manager Alastair Mundy of Ninety-One Fund Managers, the board underwent a search for a new management team. Ultimately, they appointed Ian Lance and Nick Purves of RWC Partners starting in November 2020, a highly experienced team who have managed UK equity strategies for many years.

The new managers utilise a value-based approach to investment analysis, providing a degree of continuity to shareholders who were exposed to a similar strategy under the former manager. As discussed under Portfolio, Ian and Nick believe in incorporating a ‘margin of safety’ from discounted valuations, and seek to identify businesses which are near the trough of their operational cycle. However, they also observe a market and macro backdrop which they believe should be highly supportive of gains for their investment style going forward.

As noted under Performance, TMPL has struggled in recent years, but returns have been strong on signs of economic normalisation since November 2020. Open-ended funds run by the new managers have outperformed over the previous 12 months, mitigated downside in Q1 2020, and have also displayed strong upside capture.

TMPL’s board has taken the decision to relinquish their previous AIC ‘Dividend Hero’ status and reset the Dividend at a level from which they believe the trust can grow it going forward, following a very sizeable fall in income generation in 2020. Perhaps because of this, TMPL’s Discount (c. 8%) is wide relative to the sector and its own history.

TMPL’s new managers have made a strong start to their tenure, boosted by positive tailwinds from the market and macroeconomic backdrop. Whether these conditions remain in place remains to be seen, but the quantum of stimulus being applied and potential pent-up demand (seen in highly elevated savings rates) would seem supportive to this strategy in our view. However, we do not think it is necessary for this to materialise for an allocation to value strategies to make sense at this time. As the managers of TMPL note, valuation dispersions and value discounts are extremely wide at this time and the sharp rallies seen post-November are reflective of the seemingly systematic underweighting to many value stocks within the marketplace at this time.

Accordingly, sharply disproportionate outperformance when conditions are supportive seems to us highly plausible for value strategies. Within investors’ portfolios an allocation to this type of strategy could help manage active risk to the benchmark, even if they do not foresee value outperformance. If the recent outperformance can be sustained, an entry at the current discount looks highly attractive for long-term investors. For income investors, the cut to the dividend is clearly disappointing; however, given the likely depletion to revenue reserves required to support even the reduced dividend suggests it was necessary to set a platform for more sustainable growth going forward.