Temple Bar Investment Trust PLC Annual General Meeting · 2020-01-08 · This can help to increase the rate of growth of the fund but also cause losses to be magnified. Charges to

Temple Bar Investment Trust PLC

Annual General Meeting

Alastair Mundy

Confidential | Investec Asset Management2

Target audience

This document is being provided for informational purposes only. Circulation must be restricted accordingly.

Nothing herein should be construed as an offer to enter into any contract, investment advice, a recommendation of any kind, a solicitation of

clients, or an offer to invest in any particular fund, product, investment vehicle or derivative.

General risks

The value of investments, and any income generated from them, can fall as well as rise. Where charges are taken from capital, this may

constrain future growth.

Past performance is not a reliable indicator of future results. If any currency differs from the investor's home currency, returns may increase or

decrease as a result of currency fluctuations.

Investment objectives and performance targets may not necessarily be achieved, losses may be made.

Targ

et

audie

nce

Specific risks

Borrowing/leverage risk: The Company can borrow additional money to invest, known as leverage. This increases the exposure of the Company

to markets above and beyond its total net asset value. This can help to increase the rate of growth of the fund but also cause losses to be

magnified. Charges to capital risk: A portion (60%) of the Company’s expenses are charged to its capital account rather than to its income, which

has the effect of increasing income (which may be taxable) whilst reducing its capital to an equivalent extent. This could constrain future capital

and income growth. Company share price risk: The Company’s share price is determined by supply and demand for such shares in the market as

well as the net asset value per share. The share price can therefore fluctuate and may represent a discount or premium to the net asset value per

share. This can mean that the price of an ordinary share can move independently of the market. Interest rate: The value of fixed income

investments (e.g. bonds) tends to decrease when interest rates and/or inflation rises. Equity investment: The value of equities (e.g. shares) and

equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a

company default (e.g. bankruptcy), the owners of their equity rank last in terms of any financial payment from that company.

Performance


NAV Total Return performance over 5 years

Past performance figures are not audited and should not be taken as a guide to the future.Source: Morningstar, in GBP, 28 February 2018, using cum income NAV, debt at market value.

Update on request

90

100

110

120

130

140

150

160

Feb 13 Feb 14 Feb 15 Feb 16 Feb 17 Feb 18

Temple Bar FTSE All-Share


NAV Total Return performance over 10 years

Past performance figures are not audited and should not be taken as a guide to the future.Source: Datastream, in GBP, 28 February 2018, using ex income NAV, debt at par.

Update on request

40

90

140

190

240

290

Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18

Temple Bar FTSE All-Share


-0.7

-0.5

-0.5

-0.5

-0.4

-0.4

-0.4

-0.4

-0.3

-0.3

0.3

0.4

0.4

0.5

0.6

0.7

0.7

0.7

0.9

1.0

-1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5%

GlaxoSmithKline plc

Signet Jewelers Limited

Centrica plc

ETFS Physical Silver

Drax Group plc

Capita plc

Travis Perkins plc

Global X Silver Miners ETF

Royal Dutch Shell Plc Class B

Rio Tinto plc

National Grid plc *

Imperial Brands PLC

Reckitt Benckiser Group plc *

Computacenter Plc

easyJet plc

Shire PLC *

Games Workshop Group PLC

British American Tobacco p.l.c. *

SIG plc

Grafton Group Plc

Change in position (%)

Temple Bar Investment Trust

Attribution analysis

Source: Investec Asset Management, 28 February 2018.

* Indicates the security is not held.

The portfolio may change significantly over a short period of time. This is not a buy, sell or hold recommendation for any particular security.

12 month top and bottom 10 attribution analysis to 28 February 2018

Update on request


How we invest

Our approach requires patience (and capacity to bear short-term pain)

but it is inextricably linked to opportunity

Investment is most intelligent when it is most business-like

● We research assets that are potentially mispriced

● We look for companies that we can understand and value with some measure of confidence

● We value stocks on a through-the-cycle basis with particular attention to downside risks

● We can take a substantial amount of short-term pain (falling stock price) if we are confident

our valuation is correct


The type of idea we pre-select for our shortlist

What are we attracted to?

The portfolio may change significantly over a short space of time. This is not a buy, sell or hold recommendation for any particular security.

Hidden assets Special situations Fallen angels Quality cyclicals Deep value

Cannot be computerised Spin offs Often old market darlings Industrials and financials Mediocre businesses at very

attractive prices

Re-capitalisations Large but non-fatal blow Industry down-turn

Offers opportunity to buy the

best

Examples Examples Examples Examples Examples

Capita Capita Next Lloyds Banking SIG

Royal Bank of Scotland Direct Line Tesco Travis Perkins Centrica

Marks & Spencer Royal Bank of Scotland Land Securities

easyJet CRH

Forterra

Aggreko


Avoiding value traps

What are we not attracted to?

Pre-screening

tests

Balance sheet

● Too much debt?

● Hidden liabilities?

● Thinly capitalised financial?

Valuation

● Optical cheapness not enough given

the business / industry?

● Discount to book for financials

justified by unappealing returns?

Structural

● Terminal decline?

● Risk of obsolescence?

● Value-destructive industry?

Governance

● Arm of the state?

● Controlled by a majority shareholder

with minority shareholder rights and

returns a low priority?

Circle of competence

● Too hard?

● Too complicated?

● Past experience in the sector

suggests avoiding?

Most of the stock ideas fail one or more of our pre-screening tests which we’ve

implemented to avoid value traps


After pre-selection

Full due diligence lasts between 3 and 6 weeks. Template is flexible but there are

certain questions that need to be answered

Cash flows

● Do they confirm accounting profits?

● How capital-intensive is the business?

Returns

● Does the company add value over time?

● What is a normal rate of return on capital and why should it continue to

be so?

Corporate governance

● Have management been good stewards of the business and

shareholder funds (can we “trust” them?)

● Do they have a sustainable, long-term strategy?

The business

● Can we understand the industry and the

company’s position in it?

● What are its future prospects?

The price

● Is valuation low in absolute terms?

● We prefer EV/EBIT to take account of capital structure

Capital structure

● Is it safe through the cycle?

● Does it give the company time to sort out its current issues?

Objective:

1. Is the business cheap in relation to its fundamental characteristics?

2. What is the likelihood that it will recover?

3. What happens to our investment if we are wrong?

Theme - Valuation dispersion is high across

equity markets


Increasing bifurcation between high and low PE

stocks

Source: Exane BNP Paribas, December 2017. For further information on indices please see Important Information section.

FTSE 350 ex Investment Trusts (Trailing PE)


The opportunity set

UK

Source: FactSet, 28 February 2018.

For further information on indices, please see the Important information section.

Stocks which have fallen -50% relative to the FTSE All-Share Index over 5 years,

excluding the last 2 years

Update: Monthly

30

40

50

60

70

80

90

Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17

Number of securities


The opportunity set

UK

No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided.This is not a buy, sell or hold recommendation for any particular security.

Source: FactSet, 28 February 2018.


Stocks which have fallen -50% relative to the FTSE All-Share Index over 5 years,

excluding the last 2 years

Update: Monthly

Materials Energy

Consumer

Discretionary Industrials

Consumer

Staples Utilities Real Estate Financials

Telecommunication

Services Health Care

Acacia Mining Tullow Oil AA Capita Tesco Drax Group Intu Properties Provident Financial TalkTalk Telecom

Group

Hikma

Pharmaceuticals

Vedanta Resources Petrofac Limited Dignity Serco Group Greencore Group

PlcCentrica RDI REIT IP Group Inmarsat Vectura Group

Hochschild Mining Cairn Energy N Brow n Group FirstGroup J Sainsbury Capital & Counties

Properties Standard Chartered BT Group Shire

Fresnillo Hunting Dixons Carphone Aggreko Saga

Essentra Sports Direct

International Stagecoach Group

Royal Bank of

Scotland Group

Anglo American McCarthy & Stone MITIE Group Man Group

KAZ Minerals Pearson Cobham Just Group

Antofagasta Mitchells & Butlers Galliford Try

Polymetal

International Greene King

Babcock

International Group

BHP Billiton Card Factory Go-Ahead Group

Marks and Spencer

Group

Dunelm Group

Pets At Home Group

ITV


Transaction activity

Recent Transactions (6 months)


Source: Factset, Investec Asset Management, 28 February 2018.

Update: Monthly

Buys

Capita

Imperial Brands

Additions

Centrica

Forterra

Lloyds Banking

Travis Perkins

Reductions

Citigroup

Computacenter

Grafton

Sells

International Personal Finance 5.75% 2021

Ladbrokes Coral

Standard Chartered

Yara International


Theme – Valuation dispersion is high across equity

markets

● The portfolio has a distinct bias to cheap stocks which

have underperformed (financials and consumer related

sectors)

ACTION

Theme - banks offer a favourable risk/return

trade-off


Improving fundamentals for Banks

● We are past the peak in fines and regulation

● Profitability remains strong in a fairly oligopolistic market

● Balance sheets are strong and stress-tested

● Dividends are growing

● Valuations remain modest


Valuations are modest

This is not a buy, sell or hold recommendation for any particular security. The portfolio may change significantly over a short period of time.

Source: Bloomberg, Investec Asset Management, 28 February 2018. Bank stocks held by Investec UK Special Situations Fund.

Update: Monthly

Stock Price/tangible book

Barclays 0.8x

Citigroup 1.2x

HSBC Holdings 1.2x

Lloyds Banking 1.3x

Royal Bank of Scotland 0.7x


Theme - banks offer a favourable risk/return trade-off




● The sector is the largest

overweight on the portfolio:

ACTION

Update: Monthly

Stock Portfolio weight (%)

HSBC 7.1

Barclays 4.9

Royal Bank of Scotland 3.3

Lloyds Banking 3.4

Citigroup 2.1

TOTAL 20.7

FTSE Banks Supersector 11.6

Update: Monthly

Theme: the market for repair,

maintenance and improvement

remains depressed


Real UK RMI spend has lagged European peers and is

close to a 25-year low

Source: Berenberg estimates, Euroconstruct, Datastream, December 2016.

RMI spend per capita


Current RMI spend depressed as housing

transactions remain low relative to historical average

Source: Liberum, 16 January 2018

RMI spend per house p.a. (£, 2011 prices) Age of housing stock (years)

Housing transactions as % of UK housing stock Planning permissions for householder

developments, rolling annual (000s)


Some structural positives

● The market remains

fragmented – smaller

merchants will slowly be

consolidated and this should

generate improved returns

● The sector is far less

vulnerable to disruption than

most others

● With house moving costs

high, more house owners may

be encouraged to extend their

current houses

● Government policy is currently anti-landlord. A

change in the mix of households from rented to

owned should be supportive to growth in RMI

● And rules for planning permission have been

relaxed in recent years


Theme - the market for repair, maintenance and

improvement remains depressed



Update: Monthly

Stock TBIT weight (%)

Grafton 4.0

SIG 3.0

Travis Perkins 2.8

TOTAL 9.8

● The portfolio is significantly exposed

to this theme:

ACTION

Update: Monthly

Theme – Idiosyncratic exposure to UK

consumer


Update: Monthly

Theme - exposure to UK consumer

The portfolio may change significantly over a short period of time. This is not a buy or sell recommendation for any particular security.


● Portfolio has significant exposure

to this theme

ACTION

Update: Monthly

Stock TBIT weight (%)

Marks & Spencer 1.9

easyJet 1.8

Next 1.4

Kingfisher 1.2

Go-Ahead 1.0

N Brown 0.5

Countrywide 0.1

TOTAL 8.0

Theme - China’s private sector debt growth is at

frightening levels


China – the biggest bubble of all?

Crescat capital, 5 August 2017.

Credit bubbles by country then and now. The lesson from history: credit bubble always burst

Household + corporate debt as % of GDP

Theme - government debt keeps building and

inflation is picking up


Let the unwind begin…

Source: Bloomberg, 28 February 2018.

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Combined balance sheet totals Fed + ECB + BoE + SNB + BoJ in USD (bn)


High levels of government debt have historically led

to defaults and inflation

Why should this time be any different?

Source: Forrest for the Trees, 2011. Please note that this chart has been redrawn by Investec Asset Management for stylistic purposes using the original version as a template.

Once this happens

(top arrow), 200+

years of history

tells you what

comes next:

Sovereign

restructuring &/or

default followed by

currency

devaluation –

induced inflation

(CDII) (Bottom

arrow)

We’ve been living

on borrowed time

since 2008…Rogoff

MUST know this.

0

5

10

15

20

25

30

35

40

45

50

1826 1836 1846 1856 1866 1876

20

30

40

50

60

70

80

90

1886 1896 1906 1916 1926 1936 1946 1956 1966 1976 1986 1996 2006

Perc

enta

ge (

%)

Perc

enta

ge (

%)

Countries in default or restructuring

Countries with annual inflation over 20%

Total public debt/GDP, world average


Rates are close to the lowest in 5000 years

Investors believe inflation will remain low but central bankers are keen to reflate

BofA Merrill Lynch Global Investment Strategy. March 2017.


Theme - the authorities are struggling to generate

much growth…and the debt keeps building

The portfolio may change significantly over a short period of time. This is not a buy or sell recommendation for any particular stock.


Update: Monthly

● The portfolio is exposed to precious

metals through physical holdings in

gold and silver, and also gold and

silver shares

ACTION

Security Portfolio weight (%)

ETFS Physical Silver 1.9

Global X Silver Miners ETF 1.4

Gold Bullion Securities 0.9

VanEck Vectors Gold Miners ETF 0.5

Hochschild Mining 0.1

TOTAL 4.7

Update: Monthly

Portfolio performance and positioning



Top ten holdings

The portfolio may change significantly over a short period of time. This is not a buy or sell recommendation for any particular stock.

Source: Investec Asset Management, preliminary data to 28 February 2018.

Security Portfolio weighting (%)

HSBC Holdings 7.1

Royal Dutch Shell 5.8

GlaxoSmithKline 5.4

Barclays 4.9

BP 4.7

Grafton 4.0

Lloyds Banking 3.4

Royal Bank of Scotland 3.3

SIG 3.0

Capita 2.8

Update: MonthlyUpdate: Monthly


Update: Monthly

Temple Bar Asset Allocation

The portfolio may change significantly over a short period of time.



% weight

UK Equities

Of which: 75.1

FTSE 100 46.5

FTSE 250 25.6

FTSE Small Cap 3.0

Internationally listed stocks 6.7

Physical Gold & Silver 4.6

Cash & Equivalents 13.1

Fixed Interest 0.5

● Portfolio concentration:

– Top 10 = 44.4%

– Top 20 = 65.1%

– Top 30 = 77.6%

Update: Monthly


Sector positions

The portfolio may change significantly over a short period of time.

Source: Investec Asset Management, FactSet, 28 February 2018.


Absolute positions Relative positions

Update: Monthly

0 5 10 15 20

Personal & Household Goods

Financial Services

Basic Resources

Insurance

Food & Beverage

Media

Health Care

Telecommunications

Oil & Gas

Travel & Leisure

Chemicals

Automobiles & Parts

Technology

Real Estate

Utilities

Construction & Materials

Physical Gold & Silver

Industrial Goods & Services

Banks

Retail

% weight

TBIT weights

FTSE All-Share weights

-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12


Financial Services

Basic Resources

Insurance

Food & Beverage

Media

Health Care

Telecommunications

Oil & Gas

Travel & Leisure

Chemicals

Automobiles & Parts

Technology

Real Estate

Utilities


Physical Gold & Silver


Banks

Retail

% weight

Update: Monthly


Active positions

The portfolio may change significantly over a short period of time. This is not a buy, sell or hold recommendation for any particular security.


• Index is FTSE All Share.


Top 10 overweight positions Top 10 underweight positions

Security

Fund

(%)

Index*

(%)

Active

(%)

Grafton 4.0 0.1 3.9

Barclays 4.9 1.6 3.3

SIG 3.0 0.0 3.0

Royal Bank of Scotland 3.3 0.4 2.9

GlaxoSmithKline 5.4 2.7 2.7

Capita 2.8 0.0 2.7

Travis Perkins 2.8 0.1 2.6

Wm Morrison Supermarkets 2.6 0.2 2.4

Citigroup . 2.1 0.0 2.1

Tesco 2.7 0.7 1.9

Security

Fund

(%)

Index*

(%)

Active

(%)

British American Tobacco 0.0 4.2 -4.2

Diageo 0.0 2.6 -2.6

AstraZeneca 0.0 2.6 -2.6

Royal Dutch Shell 5.8 8.2 -2.4

Vodafone 0.0 2.3 -2.3

Prudential 0.0 2.0 -2.0

Rio Tinto 0.0 2.0 -2.0

Glencore 0.0 1.9 -1.9

Unilever 0.0 1.8 -1.8

Reckitt Benckiser 0.0 1.5 -1.5

Update: MonthlyUpdate: Monthly


Summary

● A decade after the financial crisis, the growing global debt mountain

remains a significant problem

● The conventional policy tools have been fully used. We believe further

unconventional tools will be used in the future

● And if we are worrying about nothing, bonds are significantly over-valued

● And a rise in bond yields would make it hard for equities to gain

further ground…

● …although interesting opportunities do exist for contrarians

Appendix


Calendar year performance

Past performance figures are not audited and should not be taken as a guide to the future.Source: Morningstar, in GBP, 28 February 2018, using cum income NAV, debt at market value.

21.2%

1.4%

-8.4%

24.1%

4.5%

13.3%

5.6%

-7.3%

22.8%

4.4%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Feb 13 - Feb 14 Feb 14 - Feb 15 Feb 15 - Feb 16 Feb 16 - Feb 17 Feb 17 - Feb 18

Temple Bar NAV

FTSE All-Share TR GBP



Largest stock position changes


12 month period as at 28 February 2018

-2.01

-1.90

-1.70

-1.51

-1.45

1.12

1.18

1.42

1.45

2.78

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0

British American Tobacco p.l.c.

Best Buy Co., Inc.

Yara International ASA

J Sainsbury plc

GlaxoSmithKline plc

Forterra Plc

Kingfisher Plc

Global X Silver Miners ETF

Next plc

Capita plc


Update: Monthly



Largest sector position changes


12 month period as at 28 February 2018

-1.93

-1.70

-1.45

-0.64

-0.52

0.02

0.35

0.53

0.91

2.53

-5 -4 -3 -2 -1 1 2 3 4


Chemicals

Health Care

Utilities

Basic Resources

Insurance

Real Estate

Oil & Gas




Update: Monthly

Thank you

www.investecassetmanagement.com


Contact details

Outside the US, telephone calls may be recorded for training and quality assurance purposes.

Issued by Investec Asset Management, March 2018.

Telephone: +44 (0)20 7597 1900

Email: [email protected]

Investec Asset Management

Woolgate Exchange

25 Basinghall Street

London

EC2V 5HA

United Kingdom



Important information

This presentation has been issued on behalf of the Board of the Trust and has been approved by Investec Asset Management Limi ted and its

Manager. Investec Asset Management is authorised and regulated by the Financial Conduct Authority.

THIS DOCUMENT IS PROVIDED FOR GENERAL INFORMATION ONLY. IT IS NOT AN INVITATION TO MAKE AN INVESTMENT NOR DOES

IT CONSTITUTE AN OFFER FOR SALE.

All the information contained in this document is believed to be reliable but may be inaccurate or incomplete. Any opinions stated are honestly

held but are not guaranteed and should not be relied upon. The portfolio may change significantly over a short period of time. This is not a buy or

sell recommendation for any particular stock.

Past performance should not be taken as a guide to the future and there is no guarantee that this investment will make profits. The value of this

investment, and any income generated from it, will be affected by market and currency movements and by other political, social and economic

developments, as well as by fee levels and taxes and other specific matters relating to the assets in which it invests. Investors are not certain to

make profits; losses may be made. Where charges are deducted from capital, the potential for capital growth will be reduced (60% of the

management fee and interest payable are charged to capital). The effect of borrowings to finance the Trust’s investments is to magnify the

volatility of its price and potential capital gains and losses.

Please note that Investec provides Temple Bar with investment management services.

Investec may have a position in Temple Bar.

Phone calls may be recorded for training purposes and quality assurance purposes. For further details, call the Investor Services Department on

020 7597 1800, or send an email to [email protected]. Alternatively, visit our Internet site: www.investecassetmanagement.com

Tem

ple

Bar


Australia Europe (ex UK) Singapore United Kingdom

Level 23, The Chifley Tower

2 Chifley Square

Sydney, NSW 2000

Woolgate Exchange


London, EC2V 5HA

25 Duxton Hill #03-1

Singapore

089608

Woolgate Exchange


London

EC2V 5HA

Telephone:

Facsimile:

+61 2 9293 6257

+61 2 9293 2429

Telephone:

Facsimile:

+44 (0)20 7597 1890

+44 (0)20 7597 1919

Telephone:

Facsimile:

+65 (0)6653 5550

+65 (0)6653 5551

Telephone:

Facsimile:

+44 (0)20 7597 1900

+44 (0)20 7597 1919

Botswana Hong Kong South Africa United States

Plot 64511, Unit 5

Fairgrounds

Gaborone

Suites 2602-06, Tower 2

The Gateway, Harbour City

Tsim Sha Tsui, Kowloon

Hong Kong

Cape Town

36 Hans Strijdom Avenue

Foreshore

Cape Town, 8001

666 5th Avenue

37th Floor

New York, NY 10103

Telephone:

Facsimile:

+267 318 0112

+267 318 0114

Telephone:

Facsimile:

+852 2861 6888

+852 2861 6861

Telephone:

Facsimile:

+27 (0)21 416 2000

+27 (0)21 416 2001

US Toll Free:

Telephone:

Facsimile:

+1 800 434 5623

+1 917 206 5179

+1 917 206 5155

Channel Islands Namibia Johannesburg

PO Box 250,

St. Peter Port

Guernsey, GY1 3QH

100 Robert Mugabe Avenue, Office

1 Ground Floor, Heritage Square

Building, Windhoek

100 Grayston Drive

Sandown

Sandton, 2196

Telephone:

Facsimile:

+44 (0)1481 710 404

+44 (0)1481 712 065

Telephone:

Facsimile:

+264 (61) 389 500

+264 (61) 249 689

Telephone:

Facsimile:

+27 (0)11 286 7000

+27 (0)11 286 7777


Investec Asset Management

Please note that this communication is not necessarily approved for distribution in all of the above jurisdictions

Documents

Temple Bar Investment Trust PLC Annual General Meeting · 2020-01-08 · This can help to increase the rate of growth of the fund but also cause losses to be magnified. Charges to