Investment strategies often involve varying degrees of risk and return, with many investors trying to find the right balance to maximize their profits. Among the myriad options out there, two prominent investment trusts, Temple Bar and Fidelity Special Values, have emerged as focal points for value investors seeking returns from undervalued UK equities. Their managers, Ian Lance and Alex Wright, have adopted similar investment styles, yet their strategies and performances tell different stories, showcasing the diverse approaches to value investing.
Value investing, which hinges on identifying undervalued stocks, has experienced a bit of turbulence over the past decade. Growth strategies have dominated the investment scene, leading to fewer managers focused on gaining from unloved stocks. Despite this, both Temple Bar and Fidelity Special Values have proven their merit. They’ve each outperformed their benchmark, the FTSE All Share index, at different times, offering investors insight and options for healthy returns.
During the last decade, Fidelity Special Values has had the edge, boasting strong performances over both the past ten years and the last twelve months. Temple Bar, meanwhile, shone under Ian Lance’s management, especially when he teamed up with Nick Purves three years prior. The uptick under their combined leadership sparked notable improvements, making investors sit up and take notice.
Matthew Read, senior analyst at QuotedData, noted the macroeconomic backdrop significantly influences individual stock choices. With inflation changes and shifting investor preferences, it’s clear the environment complicates the value investing strategy. Yet, both trusts have managed to navigate through by producing admirable returns.
While both funds maintain substantial reach within the UK market—predominantly occupying about 72% to 80% of their portfolios—other factors differentiate them. Fidelity Special Values currently possesses a larger market capitalization of around £1 billion, compared to Temple Bar's £756.7 million. The funds are also equally matched concerning share price discounts against their net asset value, trading at 10.6% and 8.3% respectively.
One notable aspect to recognize is the steady yield backed by Temple Bar, which sits at 3.88%, outperforming Fidelity Special Values at 3.03%. This makes Temple Bar particularly appealing for income-focused investors. Meanwhile, Fidelity Special Values’ focus on smaller-cap financials—27.3% of the assets at the end of August—positions it well for continued growth, especially with rising interest rates favoring these financial institutions.
Interestingly, both funds recently increased their financial sector allocations. Temple Bar’s exposure spiked from 26% to 30% owing to solid performances within this sector, paralleling Fidelity’s long-standing allocation. This embrace of financial stocks hints at how managers view their importance moving forward.
Despite some analysts like Read backing Temple Bar for its value approach—believing its performance improvements aren’t fully recognized—other experts like FundCalibre managing director Darius McDermott favor Fidelity Special Values. McDermott supports its advantageous move toward small-cap stocks, which he believes could yield higher returns as inflation and interest rates normalize.
Peel Hunt's Anthony Leatham supports Wright's capability as he effectively finds undervalued stocks for Fidelity Special Values. His strategic focus aligns well with identifying companies enduring mergers and acquisitions which can positively change their financial footing.
On the flip side, concerns around Temple Bar's focus on achieving yield could influence stock selection, placing limits on its potential gains compared to Fidelity. While both investment vehicles present solid cases for investment, opinions vary on which may have the upper hand moving forward.
Winterflood’s Emma Bird highlights Wright's commendable stewardship at Fidelity, particularly since 2012. His management emphasizes positive stock changes, promoting stability amid low valuations—which is particularly poignant for UK shares right now. Fidelity not only focuses on capital growth; it also promises decent dividend yields and has steadily increased its payout over the years.
At the end of the day, investors are caught at the juncture of selecting between two commendable options. Temple Bar may appeal largely to those searching for deep-value prospects and income opportunities, especially if the UK market stages a resurgence. Alternatively, Fidelity Special Values offers solid exposure to smaller companies likely poised for growth as economic conditions stabilize.
Whichever choice investors make, it’s clear there are substantial strategies at play. A thorough evaluation of both funds' performances, strategies, and external economic factors should play heavily on their decisions, as the balance between risk and reward remains at the forefront of investment priorities.
