The trials of Temple Bar: an update on the MoneyWeek investment trust portfolio

There are many reasons we tend to think that investment trusts are a good vehicle for the UK’s retail investors. We’ve written about them many times before, but it boils down to impressive long term performance. Pick almost any time-frame and you will find that the average investment trust has out performed the average open ended fund in almost every sector.

That was true in the ten years to 2009, for example, and in the decade to 1967 when the average trust made 175% even as global markets returned only 75%. Even in 1966 when markets fell 8% trusts lost only 4%. It was also true when the market turned this year: from the beginning of 2020 to 8 April, the wider UK market fell 24.5%, the investment trust sector fell only 15.2%.

It’s a reassuring record – and the reason, when we decided to put together a little portfolio of investment vehicles for readers, that we chose investment trusts.

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The Moneyweek investment trust portfolio currently has six constituent trusts: Personal Assets (LSE: PNL), Scottish Mortgage (LSE: SMT), Caledonia (LSE: CLDN), RIT (LSE: RCP), Temple Bar (LSE: TMPL) and Law Debenture (LSE: LWDB). You’ll be wondering how it has weathered the virus storm. The answer is not as well as it would have without Temple Bar.

Most of the trusts have held up brilliantly – better than I could have expected. Personal Assets and Scottish Mortgage (which has an astounding record of outperforming) are both up over the last 12 months while RIT, Law Debenture and RIT are down between 7% and 10%. Scottish Mortgage has even managed to produce a positive three-month return thanks to the fact that, as the analysts at Numis put it, “many of the technology focused businesses (it holds) are considered best equipped to be resilient or benefit from the impact on consumption and working habits in a quarantine environment.” Great news for anyone who never got around to following my firm instructions to rebalance their portfolio!

Temple Bar, on the other hand, has lost 44% in the last three months and 40% in the last year. Nasty. The horrible performance is caused by all the reasons we thought we liked it when we added it to the portfolio in 2018 – it seemed like a great way to get well managed access to the obvious value in the UK market while picking up a nice yield along the way.

This worked for a while (the trust looked like it was returning to form last year). But come the crisis, I’m afraid it could not have been worse positioned for full-on economic shutdown: it is over exposed to the sectors being hit the worst and over 40% of the companies it holds have already announced dividend cuts. It has also suffered from what looked like an ill-timed intervention on gearing from its board (who insisted the manager cut his market exposure mid crisis and hence limited his ability to profit from recovery).

You could worry that Law Debenture has some holdings crossover with Temple Bar and is therefore vulnerable to some of the same dynamics as Temple Bar. But it is worth remembering that it has more of a bias to quality and it owns a global professional services business which offers steady and predictable revenues. That matters in times such as these.

Anyway, on to the good news. Even with the carnage brought to the group by Temple Bar the portfolio has done just fine. Over the last year the FTSE 100 has fallen 21%. Over the last three months it is down 23%. The numbers for the All-Share are 20% and 23%. Our portfolio is down 7.85% on the year and 13.36% in the last three months.

Obviously, just UK shares are not the best benchmark (most of the trusts are globally diversified. But the FTSE World is down 9.55% over a year and 17.75% over three months. So all in all, not bad under the circumstances.

I am not planning to change any constituents of the portfolio this month – but when the dust settles (which it might not for some time – it is hard to imagine anyone could get away with losing less than 10% on an annual basis in times such as these… ) we will look at them all again.