The board of the Temple Bar investment trust have been applauded for sticking with unloved value as it hands the £430m mandate to RWC duo Nick Purves and Ian Lance following Alastair Mundy’s exit from fund management to pursue a teaching career.
RWC is expected to take on the investment trust from October, despite the notice period for Ninety One ending in April 2021, but will waive fees until 30 June 2021 so that shareholders are not double charged. Fees will remain unchanged at 0.35% of gross asset value.
The investment trust also announced the dividend had been cut 25% to 38.5p, representing a yield of 5.9% based on its closing price on Tuesday.
Shares had nudged up slightly by 1.1% by Wednesday lunchtime on news of the replacement managers. Numis said in an analyst note that it did not expect the change in manager to have an immediate impact on the rating.
“We expect a significant narrowing of the discount may require a recovery in value stocks to see a meaningful improvement in the performance record,” the note said. “As a result, it may be some time before performance improves and timing is difficult to predict.”
The trust currently trades at a discount of 12.6%, according to Hargreaves Lansdown data. Numis was disappointed the Temple Bar board did not mention discount control measures in the investment manager update.
See also: Temple Bar ditched from FTSE 250 ahead of update on Alastair Mundy’s replacement
Board applauded for sticking to its guns as number of value strategies decreases
Numis added that the number of value-focused investment trusts had been decreasing over time and that it would have been a “difficult” decision for the board to stick by the underperforming style Mundy had employed rather than chasing the performance of growth managers.
In the last couple of years, Baillie Gifford adopted a growth bias when it took on the Schroder UK Growth fund in 2018, which despite its name had previously taken a value approach to investing. The Scottish fund house also repositioned the European Investment Trust away from value and towards growth when it nabbed the mandate from Edinburgh Partners last year.
The Temple Bar board had commissioned Stanhope Consulting to conduct style analysis of value both in international and UK markets and concluded “this is not a time in the cycle of returns to abandon this value style bias”, according to a regulatory filing announcing the manager change.
Chelsea Financial Services managing director Darius McDermott welcomed the board’s decision to stick with managers that take a value-orientated approach. “We’ve lost a lot of value managers over the last year with Mark Barnett and more recently Tom Dobell and obviously Alastair, even though his team is still there running mandates,” said McDermott.
“We still need to have value strategies available so for investors who wish to take them. I applaud what the board have done with staying with the value style. There are plenty of growth strategies out there for investors to invest in and hopefully we will have some value strategies going forward because inevitably value will have its day.”
RWC duo not as ‘dogmatic’ in their approach to value
Nevertheless, Purves and Lance do not take the same deep value approach that Mundy employed, according to Tilney managing director Jason Hollands. “The new managers at RWC also have a value style, but one which is arguably a little less dogmatic.”
Morningstar holdings-based style trail analysis of the three funds already run by the pair (RWC Enhanced Income, RWC Global Enhanced Dividend and RWC Income Opportunities) shows their funds typically occupy the core-value, large-cap quadrant.
“At the stock level, overlap between their current portfolios and Temple Bar is relatively limited, so investors might expect to see changes to the trust’s portfolio when they take over,” said Morningstar associate director for equity fund strategies Samuel Meakin.
In a paid piece of research with Quoted Data, Purves and Lance named Royal Mail, Dixons Carphone and ITV as stocks they were considering for inclusion in the Temple Bar portfolio. The research note said the pair currently saw “extreme value” in financials, particularly banks and insurers, oil and gas majors, consumer discretionary, such as retailers, media, support services and telecoms, and some companies within the materials sector.
The pair also said they planned to take advantage of the trust’s ability to add up to 30% of the portfolio to international companies.
In a press release the pair said: “In our long investing career, we have seen three occasions when dislocation in the stock market has created the most exceptional opportunities for long term, value investors; post the technology bubble of the late nineties, coming out of the global financial crisis and today.”
Alastair Mundy becomes a teacher
Ninety One said in a statement that it respected the decision of the Temple Bar board and confirmed Mundy had decided to exit the asset management industry to pursue a career in teaching.
The asset manager, which recently rebranded after it was spun out from Investec, said his career change had been unconnected to the Temple Bar announcement.
See also: Is Covid prompting a career rethink for fund managers?
Ninety One had been handed notice on the investment trust in April after Mundy announced he was taking a leave of absence due to poor health, which was not Covid-19 related. He has now returned to good health, the asset manager confirmed.
Portfolio Adviser understands Ninety One had pitched to maintain the Temple Bar mandate and had been confident they were strong contenders to maintain management of the investment trust under replacement managers Alessandro Dicorrado and Steve Woolley.
“Ninety One respects the decision of the Temple Bar Investment Trust Board in relation to the future investment management of the trust’s portfolio,” the firm said. “We will work closely with all relevant parties to ensure a smooth transition. The trust’s portfolio will continue to receive the full attention of Ninety One’s value investment team as it has done over the past 18 years, until the transferral of assets is complete.”
Hollands said it would “undoubtedly be disappointing” for Ninety One to lose its only UK investment trust client. “However, it is important to put this in context: this is a £460m market cap mandate at a £103bn firm.”
Dicorrado and Woolley continue to manage the Ninety One UK Special Situations, UK Total Return and Global Special Situations funds, supported by the eight-strong value team, led by Domenico Ferrini.
In a statement Ferrini paid tribute to Mundy’s 20 years at the business and welcomed news of his return to health. “He will be greatly missed by the industry and his colleagues and we wish him every success as he embarks on a new trajectory”.
See also: Alastair Mundy: Stockpickers are just as smart as the bond team
