How we invest

The value investment approach, our rigorous investment process and how we differ from our peers

We scour the market for unloved, misunderstood or forgotten stocks.

Alastair Mundy

Portfolio Manager, Temple Bar Investment Trust

What sets Temple Bar apart from its competitors?

  • We seek to be rational when other investors are irrational
  • We have long holding periods (on average 4-5 years); we are investors not speculators
  • Slow but steady turnover of the portfolio should ensure a good blend of companies and sectors with different characteristics and at different stages of recovery
  • We take a value approach but are very index aware
  • We undertake deep fundamental analysis
  • We use Enterprise Value (EV) rather than market capitalisation to ensure analysis allows for debt, pension deficits, contingent liabilities, working capital corrections, provisions and other liabilities
  • We are highly downside aware

A contrarian approach

The value investment approach seeks to isolate opportunities suffering from poor market sentiment. The belief is that the most predictable behavioural response of investors is their over-reaction to negative news. In principle, this enables a value investor to purchase shares in companies when sentiment towards them is very poor, and valuation is at a discount to their assessment of fair value.

Investment process

Alastair and his Value team employ a disciplined investment process focused on making long-term investments in cheap, out-of-favour companies with appropriate balance sheets.

The process begins by narrowing down the universe of stocks. Companies with a market capitalisation above £200 million are put through a screening process which highlights the weakest performing stocks. This isolates opportunities with attractive sentiment characteristics which are then in turn scrutinised in greater detail to identify potential investment opportunities.

I have found no trustworthy shortcut over the years to separate ‘the dogs from the delightful’. The long cut involves much hard work

Alastair Mundy

Portfolio Manager, Temple Bar Investment Trust

Core investment beliefs

We have a set of core beliefs which drive our value approach to stock selection and portfolio construction:

  1. Sentiment: Markets overreact to news on the upside and the downside. We aim to be sceptical of the crowd and aware of investor psychology, which often leads to an overvaluation of those stocks that are deemed to have good prospects and an undervaluation of those which are out-of-favour.
  2. Mean reversion: Amongst those companies which are out-of-favour, some are more likely than others to generate a recovery in profitability. We believe some companies have characteristics which set them apart from others and focus on these for mean reversion.
  3. Valuation: Fundamental valuation is the key determinant of stock prices over the long term. In other words ‘cheap’ stocks should outperform ‘expensive’ stocks.
  4. Diversification: Diversification is an important control. Particular companies or sectors can be out-of-favour for a considerable time.
  5. Fundamental Analysis: We do not believe the market provides contrarian investors with sufficient reward for accepting balance sheet risk. We therefore search for those out-of-favour companies with balance sheets appropriate to their business models. However, there is no guarantee that a company’s valuation will recover and losses may be made.

The typical profile of a successful stock pick

With no-one waving a flag at the bottom of the perfomance cycle, we must purchase early, which demands that we buy in to a story that by definition is considered increasingly unattractive.

Alastair Mundy

Portfolio Manager, Temple Bar Investment Trust

Past performance should not be taken as a guide to the future and dividend growth is not guaranteed. The value of your shares in Temple Bar and the income from them can fall as well as rise and you may lose money. This Trust may not be appropriate for investors who plan to withdraw their money within the short to medium term. A portion (60%) of the Trust’s management and financing expenses are charged to its capital account rather than to its income, which has the effect of increasing the Trust’s income (which may be taxable) whilst reducing its capital to an equivalent extent. This could constrain future capital and income growth. The effect of borrowings to finance the Trust’s investments is to magnify the volatility of its price and potential capital gains and losses. We recommend that you seek independent financial advice to ensure this Trust is suitable for your investment needs.

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