Disappointing inflation figures look likely to delay the start of interest rate cuts in the US. This is an unhelpful development for the many investment company sectors that have been hit since rates started to rise in 2022. I am not despairing, however. Patience is often a necessary virtue for investors.

It is definitely easier to be patient with a stock when you are receiving decent levels of dividend income from it. This past week, having droned on incessantly about the ridiculousness of discounts in the renewable energy sector, I decided to put more of my money where my mouth is and added two more names – Gore Street Energy Storage (GSF ) and NextEnergy Solar (NESF ) – to my existing exposure in Bluefield Solar (BSIF ), Greencoat UK Wind (UKW ) and SDCL Energy Efficiency Income (SEIT ). The two new holdings came with dividend yields of about 11.5%, reflecting their sizeable discounts.

GSF, as I have explained previously, is much less exposed to the problematic UK energy storage market than other listed peers and should see plenty of upside as its new plants in Ireland, Texas and California come onstream over the course of the next year or two.

NESF is in the process of realising value from its portfolio to help fund a reduction in debt, share buybacks and perhaps new investments. The company is adamant that its capital recycling programme is progressing, but I have heard some investors express frustration about the pace of this. The negativity could mean that the share price responds well when disposals are finally announced.

You could make a similar case for investing in UK equity funds. The yields might not be as extreme, but the same all-pervading gloom definitely is. I have been drip feeding money into the open-ended sister funds of BlackRock Smaller Companies (BRSC ), Henderson Smaller Companies (HSL ) and CT UK Capital and Income (CTUK ) for about a year now (there is a hassle-factor for me to get these deals signed off every month were I investing into the trusts instead). I am now wondering whether to buy a more substantial investment in one of the UK equity income trusts.

The recent clutch of annual results statements has included figures from Temple Bar (TMPL ), Dunedin Income Growth (DIG ), and Merchants Trust (MRCH ), all of which were released on 4 April.

Temple Bar has been the best-performing of the three, generating returns that are well ahead of the FTSE All-Share, while the laggard is Merchants, which underperformed by about five percentage points.

Bizarrely, Merchants issued £46m of shares over the 12 months to 31 January 2024 and trades on a 3% discount, one of the tightest in the sector, while Dunedin bought back almost £6m and trails on 11.7% discount and Temple Bar bought back a whopping £63.5m worth yet still trades 9% below asset value.

Temple’s net asset value (NAV) returns reflect its dogged value approach to investing. Fund managers Ian Lance and Nick Purves have a wealth of historical data at their fingertips that demonstrates the power of value investing and are convinced that the extended, post global financial crisis, run of success that growth stocks had relative to value has a lot further to unwind.

They note that lowly-valued stocks have outperformed their growth counterparts in every decade bar two over the last 110 years, with the other previous period of outperformance occurring in the 1920s.

However, they – and many of the other UK fund managers that we talk to – acknowledge the extent to which both international and domestic investors have continued to dump UK stocks in favour of US large caps. Lance and Purves believe that the elastic is stretched too far.

However, they are not reliant on any one catalyst for a re-rating of UK stocks to provide Temple Bar’s future returns, but rather are happy to collect dividends and profit from share buy backs. Reluctantly, because they often think that companies are sold off too cheaply, they also end up profiting from the many opportunistic takeovers that we have seen over the past few years.

One of the examples that they cite is that of Next (NXT), a Citywire A-rated ‘Elite’ stock, which has driven impressive long-term earnings per share growth not through sales growth (although that has at least been positive) but rather by shrinking its capital base.

In some ways, that is a depressing picture, speaking to the gradual decline of the UK equity market, but it demonstrates that there is more than one way to profit from UK equities and that you do not have to rely on some Damascene conversion by US investors or affirmative action by government.

James Carthew is head of research at QuotedData.

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