Temple Bar (TMPL), the top-performing UK Equity Income investment trust, is confident it can maintain its winning form after outpacing the rebound in the domestic stock market by nearly nine percentage points last year.

Annual results confirm the company, which celebrates its centenary this year, generated a total underlying return of 33.9% in 2025, exceeding the 19.9% of the previous year and again beating the FTSE All-Share by a wide margin. The index delivered 24% after a 9.5% advance in 2024.

This added £324m to TMPL’s market value which jumped from £776m to £1.1bn, making it the third biggest trust in its sector behind £2.9bn City of London (CTY) and £1.7bn Law Debenture (LWDB).

A re-rating, as investors on platforms such as Hargreaves Lansdown and Interactive Investor jumped on the shares, saw the London-listed fund move from a 6.6% discount to net asset value (NAV) to a 1.4% premium above NAV.

That enabled the company to re-issue over 5m shares and raise £18.6m.

More significantly, it meant shareholders enjoyed an even better total return of 45.3% in 2025 as the shares caught up with the trust’s investments. Over five years the trust leads its sector with a 96.6% total return compared to the 48.9% group average.

New chair Charles Cade said Redwheel “value”-style fund managers Ian Lance and Nick Purves had enabled TMPL to beat the All-Share index by 8.9% a year since their appointment in October 2020.

The managers said six stocks drove the bulk of the gains last year, all but one of them financials with rises of more than 50%: NatWest Group, Barclays, Standard Chartered, Aviva, the UK insurer, NN Group, a Dutch counterpart, and specialist chemicals manufacturer Johnson Matthey, had each added at least 2% to the 33.9% return, they said.

Another eight stocks, including Dutch bank ABN Amro, UK drugs giant GlaxoSmithKline, fund manager Aberdeen, US department store Macys and BT, currently their biggest position, each added at least 1% to the performance.

Only WPP, the advertising agency struggling with competition from artificial intelligence tools, detracted more than 1% from the return as its shares more than halved.

Cade, who replaced Richard Wyatt at the helm of the board in December, reiterated the non-excecutive directors’ willingness to increase the 30% limit on overseas stocks should the UK market continue to contract through mergers and acquisitions and companies shifting their listings to the US. At the end of February, nearly a quarter of the trust’s assets were in stocks outside the UK, though Cade said the fund managers believed there were enough opportunities in the home market for them to operate within the current restriction.

Value not volatility

With the shares down 4% this year having been knocked by the market sell-off in response to the US and Israel war on Iran, Cade sought to reassure shareholders about the uncertain macro-economic and geopolitical outlook.

First, he said TMPL’s performance was not closely correlated to the UK economy with only 35% of portfolio companies’ underlying revenue earned domestically. Secondly, he said the fund managers had proved “adept” at taking advantage of global market stress.

Lance and Purves were also confident they could continue to provide attractive long-term returns.

“Although valuations have risen from the quite extreme levels seen post the COVID pandemic, they are still low in an absolute and historical sense. In aggregate, the company’s portfolio is now valued at around eleven times earnings, higher than it was, but still a discount to the wider UK market, and around half the valuation accorded to the wider global equity indices. Accordingly, we believe the company is still priced to deliver meaningful excess return, and shareholders can look forward to the future with optimism.”

Dividends up by a third

Temple Bar’s impressive total return was not just based on rising share prices but also a big increase in dividends paid by the 4.1%-yielder last year.

The company paid out 15p per share in quarterly dividends, a third more than the 11.25p it distributed in 2024.

Under a new policy approved by shareholders last year, TMPL boosts quarterly dividends with a 0.75p per share payment from its £929m of capital reserves from historic investment gains. As a result, last year’s pay-out was not fully covered by revenues, which rose from 11.8p to 13.8p.

Announcing a 4% increase in the quarterly dividends to 3.9p per share in 2026, which will take this year’s total to 15.6p, Cade said the pace of dividend growth was unlikely to match the “significant increases” seen in the past few years which had been partly due to the strong post-COVID recovery.

Our view

Matthew Read, senior analyst at Temple Bar, said: “This is another strong year for Temple Bar, which has once again outperformed its benchmark by a wide margin. It is also encouraging to see the trust trading around asset value and issuing stock – a rarity in today’s market.

“The backdrop for UK equities was more supportive in 2025 than in recent years. Lower interest rates, a rebound in energy and mining prices, and increased M&A activity all helped sentiment. Temple Bar also benefited from a rotation away from expensive, volatile tech stocks towards cheaper, more cyclical ‘old economy’ names – very much its natural hunting ground.

“Despite this, the UK market still looks compelling relative to global peers, and Temple Bar’s portfolio continues to trade at a meaningful discount both to international indices and parts of the domestic market. That suggests there could be further upside if sentiment continues to improve.

“With geopolitical tensions rising again, uncertainty is back in focus. However, Temple Bar has shown it can make money in difficult conditions. The managers are not trying to second-guess macro events; instead, they lean into volatility and stick to their valuation discipline – a strategy that has served shareholders well and could continue to do so.”

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