Temple Bar’s tips for value investors

Looking for investment tips from the professionals? Well seek no further. Redwheel, Temple Bar’s investment manager, provides a list of dos and don’ts for value investors in the top-performing trust’s latest Annual Report.

ByFrank Buhagiar•10 Apr, 2024


Wouldn’t it be handy to get an investing tip or two from the professionals, those in the know? But not just any professionals, professionals with a track record of outperforming? Step up Redwheel, the investment manager at value investor Temple Bar (TMPL). For in the trust’s latest Annual Report, which was released on 3 April 2024, the investment manager has kindly set out some of the key factors it considers when seeking to uncover the most compelling value opportunities. In other words, a list of dos and don’ts for value investors.

Investment managers dishing out investing tips? Now that’s a rare thing. One deserving of a mention in despatches here. But first, a look at Redwheel’s track record at TMPL to see why it might just be worth paying attention to what the investment managers have to say.

Three years and counting
It’s been over three years now since Redwheel was awarded the mandate to manage the 98-year-old trust – launch date 24 June 1926. Three years, a decent amount of time for managers to get their collective feet under the table. The numbers suggest they have done just that.

According to TMPL Chairman Richard Wyatt’s latest full-year statement: “Since Redwheel took over the management of the Trust at the end of October 2020, the Net Asset Value total return to the end of 2023 has been 86.7% compared with 50.0% for the Benchmark”. As the Chairman says, this represents “a significant outperformance.” What’s more, in each of the discrete calendar years that Redwheel has been at the helm, TMPL has fared better than the wider UK equity income sector:

2023 2022 2021


TMPL share price +12.5% +3.6% +20.0%
TMPL NAV +12.3% +0.9% +24.6%
UK Equity Inc sector +2.9% -4.3% +17.8%


As for how TMPL’s latest full-year results covering the 12-month period ended 31 December 2023 compare to the benchmark, Wyatt adds: “I am pleased to report that the Trust’s Net Asset Value total return with debt at fair value was +12.3%, outperforming the total return on the FTSE All-Share Index of +7.9%. The share price total return was slightly better at +12.5%.”

Point made. Redwheel’s track record since they took over the management of the fund stacks up.

In terms of how Redwheel has generated the above returns, speaking to doceoTV, investment manager Nick Purves had this to say: “Our objective is to take advantage of what we see as the very significant undervaluation in UK equities and also in value stocks to the long-term benefit of the trust’s shareholders. We’re value investors so we look to invest in companies which, for one reason or another, are being undervalued. We’re looking to take advantage of that short-term undervaluation.”

Looking for undervalued companies to invest in is easier said than done. After all, there is no shortage of stocks that are cheap for a reason. Markets are littered with these so-called value traps and so avoiding them is key for the value investor. According to TMPL’s Annual Report: “Some value strategies simply apply mechanistic measures to identify undervalued stocks but this can lead to investing in businesses that are in structural decline; they may be cheap but their potential to recover is limited”.

By contrast, Redwheel’s “‘intrinsic value’ approach aims to identify undervalued, yet good, quality companies with strong cash flows and robust balance sheets. The portfolio management team put a strong emphasis on financial strength because it gives them the confidence that a company can survive through a prolonged period of lower profitability caused by company-specific issues, or an unexpected downturn in the economy.” As the numbers above demonstrate, it’s an approach that works. Helpfully, Redwheel goes on to provide a few pointers in TMPL’s latest Annual Report.

Redwheel’s tips for value investors
Consider probabilities and payoffs
No matter the research, there are always surprises, positive and negative. Think best and worst-case scenarios. If we think a share price could go to zero in one scenario, but has 400% upside in another, there is probably a case for investing.

Enhance, don’t drift
Discipline is key to value investing. Stick to your philosophy, you’re here for the long run. Always look to improve and adapt as things change.

Simple but not easy
Buying shares for less than their worth then selling when the value has been realised is easy to understand. But most don’t invest this way due to a lack of ‘sticking with it’. Value investing is tricky – we are hard-wired to conform – but can be rewarding.

Cycles, cycles, cycles
Profits and share prices are impacted by cycles such as credit, commodity and business. An investor’s overreaction can throw up opportunities. An advantage lies in knowing which cycles impact an investment and where we are in that cycle.

Be contrarian but not mindless contrarian
Investors love to buy what everyone else hates. But having respect for what the market is saying is key. Eagerly buying shares being sold in companies with too much debt, or declining profits, can prove costly and mindlessly contrarian.

Don’t buy rubbish
Recently the market has become fixated with quality and growth. Quality and growth are intrinsic to a business’ value. We’ve had success when high quality businesses have been questioned by the market, resulting in low value entry.

Bargains are rare, make the most of them
It’s unlikely that you’re going to buy a business trading at half its intrinsic value. However, a company or an industry will suffer a drawdown at some stage, which may present an opportunity to buy at a good value.

Adopt an absolute return mindset
Value investing is a risk averse strategy born out of a reaction to the Great Depression. By buying a dollar of value for 50 cents, you build in a ‘margin of safety’ in case the economy and/or the stock market suffer. Value investors see risk as the risk of permanent capital impairment, so, invest with this at top of mind.

Be patient, be long term
A struggling, out-of- favour business is unlikely to turn around the day after you invest. It’s more likely that things continue to get worse, so we try to be patient, allowing for profitability to improve and for the market to recognise it. Our typical holding period is at least five years.

There is no single correct method
Value investing relies on estimating the intrinsic worth of a business. Our experience tells us to be flexible, by adjusting earnings for cyclicality, and to recognise the positive (hidden value), and the negative (e.g. pension fund deficit), on a balance sheet.

So, there you have it, Redwheel’s list of dos and don’ts for value investors.

A few highlights
Among Redwheels’ tips to mention. These include:

“Buying shares for less than their worth”

“We’ve had success when high quality businesses have been questioned by the market, resulting in low value entry.”

“a company or an industry will suffer a drawdown at some stage, which may present an opportunity to buy at a good value.”

The above three have been singled out because the shares of one company are currently trading for less than their worth and so potentially offer a low value entry point that may present an opportunity to buy at a good value. The stock in question? None other than TMPL. That’s because, as at close of play on 05 April 2024, the shares were trading at a -9.79% discount to net assets, not far off the 52-week high of -10.37%. The shares are trading for less than their worth – the holy grail for value investors. And remember that TMPL’s portfolio is invested in stocks the investment managers view as being undervalued. The shares therefore offer a double discount of sorts. That begs the question, does Redwheel see value in TMPL shares?

If the amount of share buybacks undertaken by the fund in the last year or so are anything to go by, then the answer is a resounding yes. As Chairman Wyatt reports in his full-year statement: “The Board has continued with its active share buyback policy, purchasing 27,209,505 shares to be held in treasury for a total consideration of £63.5m during the year.” Furthermore, since year end (31 December 2023) “to 2 April 2024, a further 3,771,869 shares have been bought back for treasury, at a cost of £8.9m.” The value investor seeing value in its own fund then.

Perhaps, Redwheel could add another tip to their list: Sometimes you don’t have to look far to find value.