Seeking undervalued UK equities with Temple Bar Investment Trust

Temple Bar Investment Trust (LON:TMPL) seeks to provide investors with a growing income combined with growth in capital. Nick Purves and Ian lance, the trust managers, aim to meet this objective by investing primarily in UK equities, across different sectors, maintaining a balance of larger and smaller/medium-sized companies, and with a bias towards FTSE 350 companies.

Purves and Lance believe that now is an opportune time for their strategy as value stocks look set to outperform growth stocks as the UK embarks on an economic recovery. The managers aim to rotate the trust’s portfolio into those companies which they believe are available at a significant discount to value, buying and holding out-of-favour companies until share prices have recovered, at which point they will sell the stock.

UK Economy

The outlook for the UK economy is improving as the so far successful vaccine roll-out has led the governor of the Bank of England to hint at stronger than anticipated growth in the coming months. With the Brexit deal completed and the end of lockdown in sight, the UK-focused Temple Bar Investment Trust could be an attractive proposition for investors.

UK equities are trading at the greatest discount to global equities for 50 years, while UK value stocks remain at the greatest ever discount to growth stocks, which “represents a great opportunity for value”, said Ian Lance at the UK Investor Magazine Conference. “With the next two years likely to see a recovery, the outlook for value is going to continue to be good,” Lance added.

Performance

Since 2 November, when RWC Asset Management took over the Temple Bar Investment Trust, the trust is up by 65%. Within the portfolio a number of companies have performed particularly well. Royal Mail is the trust’s top performer since November, with growth of 99.4%. Closely followed by Capita, up 83.2%, and HP Inc, up 61.3% over the same time period.

“The sectors that were performing the worst before the vaccine announcements in November are now performing the best. Specifically we can see it’s the more cyclically orientated investments, that performed badly at the beginning of the pandemic, leading the recovery, and continuing to do so this year,” Lance said.

The trust has outperformed its benchmark, the FTSE All-Share index, by 27.3% over the past six months.

Temple Bar Investment Trust Portfolio

By sector the portfolio is most weighted towards financials (18.4%), communications services (14%) and energy (13%). “The portfolio is well positioned to benefit from a pick up in activity as well as reflation in the UK economy,” Nick Purves said at the UK Investor Magazine conference. The companies most represented by the trust are Royal Mail (6.6%), BP (5.4%) and Anglo American (5.2%).