Temple Bar doubles FTSE return in first five years under Redwheel

It’s been five years since value investors Ian Lance and Nick Purves took over the mandate for Temple Bar (TMPL ) and the board will no doubt be pleased with their choice, albeit a challenging one at the time.

In its first five years under Redwheel, the £1bn trust has delivered a share price total return of 221% − more than doubling the 98.6% gain made by the FTSE All Share and thrashing the 89.4% return made by its peers in the Association of Investment Companies’ UK Equity Income sector.

The trust succeeded in squashing its discount in this time, which sat 9.2% below its net asset value when the duo took over but narrowed to a rare 1% premium by the end of their first five years.

Although these numbers speak for themselves today, Lance said the board’s choice to continue with a value approach after a sharp drawdown under Ninety One’s Alastair Mundy in 2020 was not the obvious choice.

‘It was actually quite a bold decision from the trust to stick with value,’ he said. ‘2020 was the tail end of growth stocks doing really well and lots of boards went in the other direction.’

Value was left far behind in the post-covid market fervour − which saw the likes of Scottish Mortgage (SMT ) reach all-time highs − and following the herd towards growth would have been the easy path.

‘Temple Bar stuck with value and has been rewarded for it,’ Lance added.

Top performers 

Over the five years, the best performing sector for TMPL has been financials thanks to holdings in Barclays, NatWest and Standard Chartered. 

‘You had these really cheap stocks, just at the time when fundamentals were about ready to improve,’ said Lance, with rising interest rates, cost savings from reduced branch traffic, and the prospect of higher loan losses on the horizon.

And yet ‘there were growth managers saying you should never buy a bank at any valuation.’

Natwest was the standout holding, growing nearly 500% since purchase and becoming a top five position by today.

‘What really surprises people, is it’s still only on a PE of 10 and dividend yield of 6, so even having gone up this far, it doesn’t look particularly expensive now,’ Lance said.

He also highlighted the success of Marks & Spencer, growing from around £1 at the start of the pandemic when the trust bought in, to near £3.50 today, having benefitted from the rebrand of its home and clothing departments under new management. 

He underlined the trust’s discipline in avoiding major losers, such as  Guinness owner Diageo – a favourite of Finsbury Growth and Income (FGT ) – which became ‘ludicrously expensive’ around 2022 and has about halved in value since. 

‘Is that it’? 

Today, the manager said the question he gets most often from shareholders is: ‘Is that it? Is the trust close to the top?’. 

‘You’ve got to try not to anchor on the prices that existed in 2020, because the 2020 stock market was just ridiculous,’ he explained.

As a case in point, he noted that at the start of the pandemic, NatWest’s share price was the same level as in the trough of the 2008 global financial crisis, when the government nationalised its predecessor Royal Bank of Scotland. 

‘The journey is far from over,’ Lance said. He still thinks ‘there are a lot of cheap stocks in the market’, made more attractive by the ‘colossal bubble’ floating over the US. 

He added that the opportunity for value investors continues to grow in proportion to emotional or hype investing, with the number of people ‘who just don’t even bother about valuation’ − passive fund holders, multi-strategy vehicles or pod shops, for example − on the rise.

‘In the long run, that’s good for us,’ he said. ‘The fewer people focusing on the actual fundamentals and intrinsic value of a business, the better.’