Patience is the key ingredient behind the recent success of stock market-listed investment fund Temple Bar. Since Ian Lance and Nick Purves of investment house Redwheel were brought in to manage the £677 million fund in late 2020 and overhaul the portfolio, they have not exited any stocks.
Everything bought at the time they have held on to, although they have occasionally added to positions – and taken profits. Only two new holdings have been made – one undisclosed (the position is being built) and the other in Dutch car finance and insurance provider Stellantis.
‘It’s a waiting game,’ says Lance. ‘We sit there, let our holdings run and we bank the dividends for our shareholders as they come in. It might sound dull from an investment point of view, but in terms of generating return, it can be quite exciting.’
The results in terms of shareholder return have certainly been exciting. Since the experienced managers took full control of the trust at the end of October 2020, investors have enjoyed overall returns of 81 per cent.
This is double what the average UK equity income trust and the FTSE All-Share Index have delivered over the same period. Lance admits there was a little bit of luck involved in terms of the timing of their appointment. ‘We were overhauling the portfolio while the country was in lockdown and many UK stocks had been badly beaten up,’ he says.
‘It fitted in with our modus operandi which is to buy stocks when their prices are low and then hopefully sell them at a much higher price a long time down the road. We only really like trading stocks when markets are dislocated as they were in 2020 – and further back, in the financial crisis of 2008.’
The trust now comprises just 25 holdings, most listed in the UK. They are all household names – the likes of energy giants BP and Shell; banks NatWest and Standard Chartered; and retailer Marks & Spencer.
‘Marks & Spencer has turned the corner,’ says Lance. ‘It is back as a constituent of the FTSE 100 Index and it will soon be paying dividends again after suspending them when the pandemic hit in 2020. It is a retail success story.’
Shares in M&S are now trading close to £2.30, compared with 92p in November last year.
Dividends are a key component of Temple Bar’s appeal to investors. After taking a haircut in 2020, they bounced back in 2021 and 2022. So far this year the trust has announced two quarterly payments, which when combined are ahead of what was paid last year.
Although Lance says the UK stock market is cheap compared to other markets, he is not confident that international investors will return in numbers. He adds: ‘There are some great businesses here that are doing well, but the market doesn’t appreciate them. We are telling some companies with strong balance sheets to buy back shares and help drive up their share prices and earnings per share.’
Lance says fund manager Neil Woodford made a name for himself as an astute investor in the early 2000s (before losing the plot later on) by buying dividend-friendly tobacco stocks which were buying back shares.
Temple Bar’s shares currently provide an annual income equivalent to a tad above four per cent. Its market identification code is BMV92D6 and market ticker TMPL. Annual charges total 0.54 per cent.
One final note. Temple Bar split its shares in May last year. It means investors now hold five shares for every one they previously held – which explains in monetary terms why the dividend per share is around a fifth of what it was before.