I’m the fund manager of Temple Bar Investment Trust: Here’s where I would invest now

Each month, we put a senior fund or investment manager to task with tough questions for our I’m a fund manager series to find out how they manage their own money.

We want to know where they’d invest for the next year – and next 10 years – and what pitfalls to avoid. 

We also quiz them about Nvidia, gold, and bitcoin and their greatest ever investing mistake. 

This week, we spoke to Ian Lance, co-fund manager, Temple Bar Investment Trust.

The fund’s objective is to provide both capital growth and income for its shareholders and to offer them a total return greater than the benchmark FTSE All-Share Index.

As can be expected, it invests mainly in UK companies but it also has sizeable holdings in the Netherlands, the US and France.

The financial services sector appears to be its most preferred area of the market at present with large holdings in Barclays and NatWest.

It also has large holdings in some popular UK staples such as Mark and Spencer, ITV, Aviva and BP. 

Temple Bar currently trades at discount to its net asset value. It offers a dividend yield of 3.34 per cent, according to Hargreaves Lansdown’s platform.

1. If you could invest in only one company for the next 10 years, what would it be?

Pearson. The company has transitioned from being a publisher of physical textbooks used by mostly US college students to a provider of online learning content. 

In addition, their business model has shifted from being transaction based to mostly subscription based and is therefore much higher quality in our view. 

This is a huge market place in which Pearson has leading positions and it is one with growth potential. 

Significant demographic shifts and rapid advances in generative AI should be important drivers of change in education and work over the coming years, supporting this market growth and playing to Pearson’s strengths in assessment and verification.

2. What about for the next 12 months?

In our own portfolio, we hold stocks for longer than 12 months but I would say Abrdn. 

Most investors will only know Abrdn through its struggling fund management business and may not even be aware that it also owns Interactive Investor and Adviser which we believe are worth as much as the whole group today i.e. the market ascribes virtually no value to the investment business which still has assets under management of £370billion. 

Management should be able to make the Investment business significantly more profitable by reducing costs and there are other areas of potential value within the business such as their stake in Phoenix and their Core Equity Tier 1 surplus.

3. And what if you had to pick a company listed outside the UK for the next decade. What would it be?

TotalEnergies. The investment thesis for large energy companies like TotalEnergies is that they will continue to generate prodigious amounts of cashflow which will be distributed to their shareholders via dividends and share buybacks. 

In the case of TotalEnergies, the dividend yield is 6 per cent and I believe it is likely that this will grow over time. 

In addition, the company is currently buying back about 6 per cent of their shares in issue each year. 

If they were able to sustain this for a decade it would produce a total return of 12 per cent per annum meaning that every £1 invested would be worth £2.77 at the end of the decade and this assumes no growth and no re-rating. This is of course not guaranteed.

4. Which sector do you think people should be most excited about and why?

Banking. Many fund managers were badly scarred by the Great Financial Crisis and vowed never to invest in banks again, some even go as far as calling them ‘uninvestable’. 

This is great news for us as it means that they have not realised the very significant changes that have occurred over the last fifteen years to make banks much less risky which include much more prudent lending and significantly stronger capital ratios. 

This general failure to appreciate the changes within the industry means that many companies are still very lowly valued which is both good for anyone wanting to invest in them today but also for the companies themselves as they can re-purchase their own lowly valued shares.

5. What sector would you be avoiding and why?

Information Technology. The technology sector has dramatically outperformed over the last decade and shows all the signs, in my view, of being at the late stages of a bubble in which expectations for future growth have become unanchored from fundamentals. 

Investors need to remind themselves that good companies can be bad investments if you pay too much for them. 

Microsoft was an excellent company in 2000 but if you bought it in that year, it took you sixteen years to get back to the price you bought in at.

6. Do you think the UK market is currently cheap and why?

On many measures the UK market is cheaper than it’s been for fifty years and I think this point is proven by the large number of UK companies that we have seen bid for in the last year by overseas corporates and private equity. 

The market became this cheap as pension funds reduced their allocation to UK equities from over 50 per cent in 2000 to around 3 per cent today which put downwards pressure on shares prices. 

This was then amplified by many large financial services companies aligning their asset allocation with global market cap weightings; today the US represents over 70 per cent of the MSCI World Index whilst the UK represents around 3 per cent. 

The good news is that the combination of bids and share buybacks is starting to realise value within UK equities.

7. Which other country do you think is cheap at the moment and why?

To me, Japan looks very cheap from a historical perspective which is a function of poor corporate profitability, inefficient balance sheets and management who were often deemed to be not particularly shareholder friendly. 

This is, however, changing for the better as a result of reforms brought in by the Tokyo Stock Exchange

8. Should investors focus on growth or value stocks?

Value. Many academic studies identify three factors which earn a premium over time; value, size and momentum whilst growth earns a return below that of the wider equity market over time. 

The 2010’s was an anomalous period when growth did produce strong returns although this was likely a function of the unusual macro environment of low/zero interest rates and quantitative easing. 

Since 2020, however, value has begun to outperform growth in every geographic area other than large cap US and yet the gap in valuations between growth stocks and value stocks is wider today than it was in 2000 which should be supportive of good returns from value in the coming years.

9. What about active or passive investing?

I fully understand the argument for passive which is that most fund managers produce a return below that of the market after fees. 

On the other hand, using an active value approach we have been able to generate outperformance over a number of years so feel we have been able to demonstrate that active management can add value for investors. 

Finally, some people have suggested that passive investing has become so dominant that is has distorted the market and driven prices away from levels that can be justified by fundamentals. 

Investors buying a US or World index fund are allocating a significant amount of their money to a small number of companies which look very expensive and thus investors should understand that passive investing is not zero risk.

10. Should investors choose Temple Bar Investment Trust over say a passive FTSE All Share index fund?

Since taking over the trust its share price has increased by 129 per cent (as of 31 December 2024) which is significantly in excess of the 64 per cent you would have received by investing in an index fund tracking the trust’s index – the FTSE All Share – over that time period. 

But I must remind investors that they cannot rely on past performance as a guide to what may happen to their investment in the future.

11. Nvidia? Is it a bubble about to burst?

Yes I think Nvidia looks like a bubble. The share price has risen by 900 per cent since 1 January 2023 and at one point added $1 trillion of market cap in 30 days. 

The valuation now is 25x revenues and the company is nearly 5 per cent of MSCI World. 

In an indication of how the stock was priced for perfection, it fell 17 per cent in a single day when news emerged of the launch of Deepseek.

12. What company could become the next Nvidia?

I think it is unlikely that we will ever see another phenomenon like Nvidia. We could look back and see this as one of the most over-hyped stocks in history.

13. Is the property market ‘safe as houses’ or due a crash?

There is no doubt that house prices in the UK are exceptionally expensive and none of my children could afford to buy one on their own. 

However, for prices to fall either demand needs to decline or supply needs to increase and neither of those seem likely.

14. Will interest rates return to rock bottom again? 

We don’t forecast interest rates as part of our process but having read ‘The Price of Time’ by Edward Chancellor, it is obvious that the level of interest rates over the last fifteen years was anomalous in a historical context and had severely distorting effects. 

My guess is that they will now move back to a more normal level.

15. Do you think inflation is transitory or here to stay?

Again, we don’t forecast inflation as part of our process, but I can see forces which will keep inflation higher than average such as the move from cheap reliable energy to expensive unreliable energy and governments continuing to run enormous budget deficits.

16. Should gold form part of everyone’s portfolio?

I think gold has a role to play in peoples’ portfolios given the propensity of most governments to run permanent budget deficits which ultimately need financing through the issuance of money which is likely to debase its value over time.

17. What about bitcoin?

I do not invest in crypto and I struggle to understand it. Whilst its advocates will describe it as an alternative to fiat money and a store of value, the fact that it moved in line with the Tesla share price for a long period of time tends to suggest that other factors are more influential. 

18. You inherit £100,000 in your twenties. What should you do with the money?

I have advised my own children to put nearly all their savings into equities with obviously a substantial amount in the Temple Bar Investment Trust.

19. What’s your greatest ever investment?

Buying shares in Temple Bar when we took over the management of it in October 2020 since which time the share price has increased by 129 per cent.

20. What’s your greatest ever investing mistake?

In the late nineties I became convinced that investing was just about buying high quality companies with great brands which gave them market positions which were very hard to compete against. An example would be Coca Cola. 

I learned the hard way that the most important driver of future returns is valuation and whilst it was correct that Coke is an amazing brand name, the share price halved from its 1999 peak as it was trading on a multiple of 50 times. 

This is a salutary lesson for those investors following similar quality growth type strategies today.