Temple Bar (TMPL), the best performing UK equity income trust over one and five years, notched up another 3.5% of investment gains last month as the UK stock market rallied on the back of tariff agreements between the US and the EU and Japan.
The underlying gain in the investment trust’s net asset value backed a 4.5% shareholder return, according to the latest fact sheet, as the shares moved to trade at “par” or in line with NAV where they currently remain.
The shareholder return was ahead of the 4% advance in the FTSE All-Share which benefited from gains in mining and financial names, making it one of the best-performing markets in July.
Banks and BP boost returns
Temple Bar, managed by value fund managers Ian Lance and Nick Purves at Redwheel, was propelled largely by gains in oil giant BP and banks Barclays and Standard Chartered. Its shares have returned 30.5% in the past 12 months to 15 August.
The managers said its banks “continued to benefit from strong net interest margins and a benign loan loss cycle”. Despite good recent performance – with their shares up 39% and 36% respectively this year – both Barclays and Standard still only trade at around book value, priced at a modest 10 times earnings. Neither are in the trust’s top 10 with the managers preferring to hold 4% in NatWest and 5.1% in insurer Aviva, their top position.
BP, a 4.1% holding under pressure from activist hedge fund Elliott Management, rose 10% last month. Towards the end of July it appointed Albert Manifold, former boss of building materials group CRH, as its chair, replacing Helge Lund.
Lance and Purves commented: “Although BP has struggled as of late and has deployed capital poorly in the last few years, today the company is valued at a multiple of just five times its free cash flow target for 2027.”
Challenged WPP
WPP, the advertising giant, took the shine off an otherwise good month for Temple Bar. It slumped 25% in July with a trading update warning of a reduction in full-year profits amid a “challenging economic backdrop”. This prompted the departure of chief executive Mark Read who is being replaced with Microsoft chief operating officer Cindy Rose. WPP, which has dropped out of Temple Bar’s top 10 having been its ninth biggest holding at 3.7% of assets in May, has continued to fall following the interims on 7 August.
“WPP was the largest detractor from performance during the month. WPP’s share price fell as the company cut its outlook for 2025. WPP also announced a new CEO during the month,” they said.
The managers remain confident with their strategy having overseen a sector-topping performance since taking on the £978m investment trust in October 2020 just as the previously out of favour value approach came back into style as interest rates and inflation rose. Over five years the portfolio has grown by 146.8% with dividends included, underpinning a 185.1% total shareholder return that has greatly exceeded the 74.2% from the FTSE All-Share.
“UK equities continue to be valued at a significant discount to global equities generally. Accordingly, we believe that, notwithstanding the shorter-term uncertainties, UK equities are priced to offer relatively attractive returns into the future,” Lance and Purves said.
Ian Lance will be speaking to QuotedData’s James Carthew for this Friday’s In The Hot Seat show at 11am. Register here if you want to hear more of his views.
