Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Ian Lance. He is Manager of the Temple Bar Investment Trust (TMPL). Hello.
Ian Lance: Hi, Holly.
Black: So, Ian, investment trusts can be a bit cryptically named. So, do you want to tell us what Temple Bar does?
Lance: Yeah. Temple Bar is a – it's a very old investment trust. It's at 93-years-old, I think, and it's fairly standard investment trust in terms where it seeks to give an income and grow capital and exceed the return from the FTSE All-Share Index. I guess, it's differentiating factor these days is the strong value bias of the managers myself and Nick Purves.
Black: And dedicated Morningstar readers will have noticed that the trust was one of the top performers of the first quarter of the year. So, what's been going right?
Lance: I guess that comes back to the strong value bias. We repositioned the fund when we took over the management of it on the 1st of November last year, and the fund is very exposed to areas like energy, financials, materials and those are basically the areas which bounced back very aggressively after the news came through about the vaccine.
Black: And are we expecting this value style to be back and here to stay because it feels like we've been waiting for a lot of years for value to come back into fashion, and we've had a few false starts along the way?
Lance: Yeah. I mean, we are. You're absolutely right, there have been a few false starts. We think this one is for real and for three reasons really. Number one, the gap in valuations between value stocks and growth stocks is still very, very large. That hasn't really changed at all. Number two, people haven't really started to reposition. So, we haven't really seen people buying value funds in any significant size. I think that's still to come. And number three, when we – we're expecting this year to be a fairly significant economic rebound, and that will favor value type sectors, so some of the sectors that I mentioned, energy, financials, materials. So, we do think this value rotation is set to continue.
Black: And you mentioned you took over the fund in November. What's it like to take over a trust that's got such a history?
Lance: We were very honored to be honest with you. And we were particularly flattered because value investors have had a pretty tough time for the last few years and lots of boards of lots of investment trusts have basically thrown in the towel and had got rid of their value managers and basically rotated to growth managers. And I think there's a lot of credit to the board of Temple Bar for not doing that, actually sticking with the value manager. And we're quite honored that they decided to put their faith in us.
Black: And so, while value might have been out of fashion, one thing that is firmly in fashion is ESG. And that's something you're thinking about in the portfolio as well, isn't it?
Lance: It is, but I think in a slightly unconventional way. The way that we think about ESG is that we think it's completely wrong to just exclude companies. We don't think that achieves anything at all. If I go and sell my shares in BP, somebody else buys them. That doesn't change the behavior of BP at all. What we think does work is engagement. So, we think that you can be a value investor and a responsible investor because you basically buy positions in these types of companies, you engage with the companies and you basically encourage them to improve their environmental performance, and that then is good for everyone. It's good for the shareholders of the company. It's good for the employees. It's good for the society at large. So, that's really our take on ESG.
Black: And how hard is it to find ESG bargains in this value world at the moment, because obviously, a lot of the popular ones, shares like Tesla, it's very priced in?
Lance: Yeah. You're absolutely right. And I think that's one of the reasons why we are big advocates of, I suppose, our style of ESG investing. Because you're absolutely right, a lot of money that's gone into ESG strategies, it's gone into roughly the same names you mentioned, Tesla, and it's driven up the valuations of those stocks. And therefore, whilst they might be nice stocks from an environmental point of view, there's a chance that they could provide pretty awful returns because of their starting valuations. And so, we think that the alternative route is something that we refer to as sustainable value is to actually invest in these businesses like the energy companies and basically put pressure on them to improve their environmental performance and then you get the best of both worlds because you get to buy a cheap stock, but you actually get to make an impact in terms of improving the environment.
Black: Ian, thank you so much for your time. For Morningstar, I'm Holly Black.
