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Temple Bar Investment Trust - sticking to its guns

Jonathon Curtis, Investment Analyst, reports on Temple Bar Investment Trust after it released its annual results to 31 December 2018.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • Alastair Mundy is confident investing in unloved companies with the potential to recover will reap good long-term rewards
  • NAV fell 11.2% over the 12 months to 31 December 2018
  • The share price fell 9.7% compared with the benchmark’s 9.5% fall
  • A dividend of 46.72p was paid – variable and not a reliable indication of future income

Alastair Mundy, manager of Temple Bar Investment Trust, looks for companies that have been through a tough time and seen their share prices fall. He invests in them as long as he thinks the setback is temporary. While he waits for them to recover, he collects any dividends they pay, which are paid out to investors.

It's a classic contrarian approach. But it means the trust invests in companies that can stay unpopular for some time. This can lead to weaker periods of performance, which we've seen in recent years. That’s contributed to the trust currently trading on a discount of 2.2%.

We think Alastair Mundy is a decent investor and his approach has tended to work well over the long run. Past performance isn't a guide to future returns though.

How’s the trust performed?

The trust’s net asset value (NAV) fell 11.2% and its share price fell 9.7% during the year to 31 December 2018. The trust’s benchmark, the FTSE All-Share index, fell 9.5% during the same period..

A 46.72p dividend was paid, which is 10% more than last year. This is the 35th year in a row the trust has increased the annual dividend. Based on the latest dividend the trust currently yields 3.5%. That’s not an indication of future dividends though, and income is variable.

Annual percentage growth
Mar 14 -
Mar 15
Mar 15 -
Mar 16
Mar 16 -
Mar 17
Mar 17 -
Mar 18
Mar 18 -
Mar 19
Temple Bar Investment Trust -0.6% -10.1% 26.3% 2.2% 11.6%
FTSE All-Share 6.6% -3.9% 22.0% 1.3% 6.4%

Past performance is not a guide to the future.Source: Lipper IM to 31/03/2019

The biggest dents in performance were caused by building materials supplier Sig, builders merchant Travis Perkins and several banks such as Barclays and Lloyds Banking Group. The manager has stayed invested in them though as he thinks they’ll do better in the future.

Royal Mail Group, energy provider Centrica and jewellery retailer Signet Jewelers were all sold as the manager lost conviction in the businesses.

Some other investments performed well, like pharmaceutical company GlaxoSmithKline, energy producer Drax Group and wargaming miniature company Games Workshop, which was sold after making a profit. Computer services provider Computacentre and insurer Direct Line were also sold after performing well.

The manager added eight new companies to the trust in 2018. These include house builder Crest Nicholson, flooring company Headlam, and fashion retailer Superdry. They’re all typical of the companies Mundy invests in – they’re going through temporary challenges that he expects them to work through and could be bought at share prices that don't reflect their future potential.

Manager’s outlook

Growth is slowing in both the UK and global economies, but Mundy doesn’t think either are headed for recession. He believes governments and central banks will do all they can to avoid this. He thinks we could be in for more stock market volatility though. That’s why he’s invested part of the trust in precious metals like gold and silver, which often provide some resilience in uncertain times.

Mundy also thinks bond yields will start to rise again after falling for more than three decades. Low bond yields encouraged many investors to turn to shares for better returns on their money, pushing up share prices. If bond yields do rise many share prices could come back down. Mundy invests in shares that’ve already suffered declines, so he thinks these are unlikely to fall much further if there is a setback. Or they could hold up better than expensive high-growth shares that've already performed well in recent years, though there are no guarantees.

The manager invests in some smaller companies, which are higher risk than larger ones, and companies from higher-risk emerging markets. He can use derivatives to help him invest, and gearing (borrowing to invest) can be used, which both add risk. Potential investors should refer to the KID and latest annual reports and accounts for further details of the risks and charges.

Key Information Document

More on this trust, including charges

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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