The investment trust has a superb long-term track record of generating shareholder value
Thursday 29 Aug 2019 Author: James Crux

Investors seeking a portfolio of cheap, dividend-paying stocks and selling on a 6.3% discount to net asset value (NAV) should look to Temple Bar Investment Trust (TMPL).

This fund has a lot of attractions but isn’t suited to someone who is impatient and wants to see immediate gains.

Value investing is currently out of fashion so anyone buy Temple Bar needs to understand that its shares are unlikely to race ahead near-term. However, we still think it is worth owning as it could fare better than other funds during periods of market sell-offs, as the undemanding valuations in the underlying portfolio offer a margin of safety.

In a market sell-off, stocks trading on very high valuations will likely be punished as the market is no longer prepared to pay such high multiples of earnings. In contrast, stocks in Temple Bar’s portfolio are already trading on lower multiples.

Managed by Alastair Mundy, Temple Bar seeks to provide investors with growth in income and capital to achieve a long-term total return greater than the benchmark FTSE All-Share index. The bulk of the domestically-skewed portfolio is invested in the FTSE 350.

Mundy scours the market for unloved, misunderstood or forgotten stocks – separating the ‘dogs from the delightful’. Undertaking deep fundamental analysis, he invests early in recovery situations and holds for long periods. He uses enterprise value rather than market value as a metric to ensure his analysis allows for debt and pension deficits.

During the first half of 2019, Temple Bar’s total return slightly underperformed that of the All-Share, Mundy’s value style remaining out of fashion. However the trust has outperformed the benchmark on a decade-long view.

Temple Bar is also one of The Association of Investment Companies’ ‘Dividend Heroes’, trusts that have increased annual dividends for 20 consecutive years or more.

For 2018, the quarterly dividend-paying fund increased the shareholder reward by 10% to 46.72p. This marked the 35th consecutive year of growth, despite some years of low payout growth from the underlying portfolio, notably in 2000 and 2009 when many companies actually reduced their dividends.

Portfolio holdings now include pharmaceutical giant GlaxoSmithKline (GSK) and oil major Royal Dutch Shell (RDSB). Temple Bar also offers exposure to Lloyds (LLOY) and dividend resumption story Royal Bank of Scotland (RBS). ‘We just want them to be dull and boring,’ says Mundy of the banks.

Other positions include Tesco (TSCO), fashion brand Superdry (SDRY), builders’ merchant Travis Perkins (TPK) and support services group Capita (CPI).

Temple Bar also holds physical gold and silver for portfolio diversification and an inflation hedge.

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