I've just listened to an interesting podcast on an Investment Trust that I mentioned briefly in passing back in October when the UK was looking unloved and particularly cheap on a historic basis. Fortunately I also bought a few for myself at the end of September at a devilishly good price of 666p and it has done OK since then and the discount has narrowed too which is an added bonus. 

The trust concerned is Temple Bar which had a pretty poor run under its previous manager who had to retire hurt, but the new managers have a good reputation as value managers and have some interesting insights on that and the current growth / quality versus value debate, including some interesting comments on M&S, Royal Mail and Microsoft along the way.

You can find the Podcast here and I hope you might find it interesting if you are looking for a way to play a resurgence in Value. 

Having mentioned the dividend flows in the market and for the Compound Income Scores Portfolio in the September / Q3 update, I thought I'd provide an update having read the latest Link Asset Service Dividend monitor recently.

For the portfolio it looks like things are looking up on the dividend front this month with 9 holdings having gone or are due to go Ex Dividend, which is two times more than last year and the totals received are also over double. So as I said in the last update the large fall in year to date income, whilst no doubt reflecting the trends in the market, also reflects some stock and timing differences this year too.

As for the Link Asset Services I'll not try and regurgitate too much of the detail here but offer a few key takeaways and observations plus a link to the full document if you missed it and should wish to download a copy and read it for yourself. Below is their Executive summary with my thoughts thereafter.

Thoughts and Observations
Personally I find it somewhat surprising that Mid and Small Caps have cut more both in number and in quantum as these indices have gone onto outperform the FTSE. Then again perhaps I shouldn't be as Mid and Smaller Companies may be more vulnerable to effects of the virus / shut downs etc. and dividends are not really driving returns this year or any other year for that matter.

In terms of the outlook they seem to think we are through the worst of the battle on the dividend front as we have seen some Companies starting to reinstate or make up for missed dividends in some cases. As a result they see the underlying dividends falling by around 39% for the year and by about 45% if one includes specials. So this is not far off the 30 to 50% falls that were talked about earlier in the year.

While for next year they are expecting some modest bounce back in dividends and tentatively suggest growth of 6% to 15% on a worst case to best case scenario. On this basis they see the current prospective yield being between 3.3% and 3.6% which they suggest leaves UK Equities looking fair value.

Thinking about that and the Ready Reckoner I presented back in the Spring that would be at the bottom end of the yield range of roughly 3.5% to 4.5% that we have seen for FTSE in recent years. With dividend having been cut back to more sustainable(?) levels then may be it makes sense for the market to trade towards the bottom of the range on a yield basis, perhaps. This is especially so given the fall in interest rates, bond yields, property rents and talk of negative rates by the Bank of England.

For what it is worth I present an updated version of the FTSE Ready Reckoner with two new rows reflecting Links latest thinking versus my original 33% to 50% cuts estimates and the original 3.5% to 4.5% range. Thus far the market seems to have operated on the basis of a 30 to 40% cut priced off of 3.5% or 5800 - 6400 roughly speaking.

Summary & Conclusion
So hopefully the worst is over on the dividend front for the UK market with a fall of 40 to 45% or thereabouts in dividends still foreseen, although this may have been discounted if investors are prepared to price those dividends off of a 3.5% yield. If not or if dividends were to fall a bit more then a re-test of the March 5200-5,000 lows on FTSE still can't be ruled out.

Indeed that leaves it looking pretty bedraggled and war torn with the chart trending down below its moving averages. Not great, as we head towards BREXIT but hopefully some resolution or last minute deal there and better news on the Virus front if a Vaccine should become available in the not too distant future might help sentiment. Failing that it seems we are in for a long hard winter as greater lock downs seem to be creeping around the Country and spreading South and Eastwards from the North and Wales!

Having said that it is a market of Stocks and there are always opportunities out there for individual stock pickers as demonstrated by some who have still managed to show decent positive returns despite all the problems. in addition UK Equities look pretty unloved and a bit cheap in a global context. So I wouldn't get too bearish and in the long run quality dividend paying equities still seem like a decent way to find a growing yield with potential for capital gains in a low yield environment. If you need help finding these don't forget that's exactly the type of stocks the Compound Income Scores try to identify.

Failing that if you would rather go down the pooled fund route & go active then I'd still recommend Investment Trusts which benefit from their closed end structure, independent boards and the ability to gear which can help to enhance or detract from returns depending on market conditions. They also tend to have revenue reserves and the ability to pay dividends from Capital which can make their dividends more reliable.

Given the bombed out nature of UK Equities it might be worth investigating a few UK Funds like Law Debenture (LWDB) which has solid reserves and benefits from an operating subsidiary which helps fund a fair chunk of its dividend and trades at a 4 to 5% discount with an experienced management team from Janus Henderson and offers a 5% yield.

Or there are a couple on wider discounts of around 10% which are either under new management in the case of Edinburgh Investment Trust (EDIN) or about to be in the case of Temple Bar (TMPL). Of these Edinburgh has increased it dividend and has decent reserves while Temple Bar has had to cut and will use reserves to pay its suggested dividend. But both might be interesting as a source of decent income from diversified portfolios, although you'd have to satisfy yourself that you are happy with the portfolio strategy of their new mangers.

Any way I'll leave it there as this note has already taken me longer than I thought and ended up longer too. So I'll leave you with a picture of the dividend history and outlook to sum up as I continue play some of my old favourites in the Stock market and on Spotify too.

..or part three of the IT's a Christmas Carol Tale. So here it is Merry Christmas everybody's having fun, here's to the future now it's only just begun! The party is in full swing and the revellers are enjoying themselves but to recap the investment trust I mentioned in the last couple of posts continues to languish on a 20% or so discount. This is despite a decent long term track record, a 4%+ yield which I forgot to mention has increased for 29 years in a row too. Come on what is it I hear you cry - well we will get to that.

First lets look at the issue of performance which I also mentioned in the bear points yesterday. In terms of performance if we take the last three or five years and the underlying Net Asset Value Performance (NAV), this has been slightly ahead of the FTSE All Share, which is good, but toward the lower end of the sector performance, which is not so good. We also saw yesterday in share price terms that holders had underperformed the index over the last 10 year which is disappointing. Now some of this may be explained by discount movements and the drag of the expensive debt which I also mentioned yesterday and will come on to again in a moment.

Before that lets take a look at the Asset Allocation which I mentioned in the bear points as being unusual for its sector, the UK Equity Income Sector. In addition to the UK equities that they hold which are split 50/50 between FTSE and Mid / Smaller Companies they also hold around 30% of the fund in UK Property. Now this may or may not appeal, but personally I quite like exposure to equities and property as a way of growing and protecting my capital and income from the ravages of inflation. Now may be you are wary of property right now and that might put you off, but I'm not going to debate that here I'll just let their track record in this area (shown below) speak for itself.

That track record equates to an annualised total return of 13% according to the managers in the Annual report and accounts. This compares to an all in cost of the expensive debt that I mentioned (which they used to finance the properties) of around 9%. This figure is arrived at because apparently the two debentures which carry coupons of 9 3/8% & 11% were issued at a premium. Now of course if they wanted to repay these or refinance these in the short term the would also have to pay a premium which in last years reports and accounts was put at around £12m over te £40m book or par value. This is why the discount which is often stated with debt at par can be lower if you adjust the debt to market value.

Any way that is all a bit complicated and technical, but in this case it is not something you should have to worry about if you are prepared to buy and hold this one for the next 10 to 11 years or so. This is because in last years annual results the Chairman set out their plans to address the discount. Subsequently the AGM approved an ordinary resolution which requires the Board to put an Ordinary Resolution to Shareholders in 2024 in relation to the future direction of the Company, including proposals that provide an opportunity for any Shareholder to realise their investment in full at NAV, less costs, by 31 March 2027 at the latest. So with this in place you know you can look forward to the discount of 20% being closed over the next ten year which will give your returns around a 2% per annum tail wind. In addition as the debentures roll off in 2021 & 2026 any potential dilution from paying a premium to refinance them should have disappeared. Thus unlike most active funds which start off 1 to 2% behind due to costs this one in share price terms should at least be about 1% ahead if the discount reduced in a straight line, which odf course it probably won't.

Also Worth noting that to take advantage of the low rates for long term money, they have also borrowed £15 million from Santander UK plc for ten years at a rate of 4.5% p.a. including all costs. The money is being invested in properties with yields well above this, and it replaces the original £5 million loan arranged in February 2015. It enables them to look forward to their dividend prospects in the current
year with some confidence, although at the moment they said it was too early to make a forecast.

Summary & Conclusion
Sorry if that was all a bit boring and dull, but then it is a bit of a boring and dull idea and as I said before not one for Tiny Tim traders as it is unlikely to provide much excitement in the short term apart from the latest dividend of 2.6p which is due to go XD on 29/12/16. However, if you want some good Value & Income (VIN) from UK Equity & Property holdings then this could be a good one to lock away for the next tern years. In the meantime you should then be able to enjoy a 4% and likely growing yield which is now being paid out quarterly. If that has tempted you to join me as a shareholder in this one then I suggest you take a look at their website here and you should certainly take a look at the report and accounts which I attach below. Finally all that leaves is for me to wish you all a very Merry Christmas and a Happy and Prosperous New Year.

...or Part 2 of IT's a Christmas Carol. I left you yesterday with a look at the long term track record of this UK Investment Trust. Despite this track record and the shares currently yielding over 4% Mr. Market or Scrooge has seen fit to offer this one on a discount of a little over 20%. This may help to explain some of the share price underperformance in the last 10 years which is shown above and like yesterdays graph, is extracted from their report and accounts.

Currently there are a number of potential explanations for this discount which I'll mention in passing today before we take a look into the future with the final part of this trilogy. As I want to keep this brief I'll cover some of the bear points in bullet point form as follows:

• The performance has been a little lack lustre in recent years
  
• Hurt this year by a bias towards Mid Cap & Smaller stocks, although this helped in previous years
  
• They have some expensive fixed debt which reduces the discount if marked to market
  
• It appears quite highly geared as a result
  
• It is quite a small (£100m or so) self managed trust
  
• It has an unusual asset allocation for it's sector, I'll have more on that in the final part.
  

Against that I think their Investment Philosophy seems quite sensible to me:

Our investment approach is shaped by six core beliefs. By following these principles we aim to maximise clients' portfolio returns while minimising their investment risk:

• Value - we prefer low valuations. We invest where the price does not reflect fair value.
• Size - smaller companies (on average) offer greater growth potential.
• Fundamental - analysis is needed to appraise the quality of earnings and estimate fair value.
• Independent - we ignore market noise and current fashions. We diverge significantly from the index.
• Patient - we wait for the right investment opportunities before investing.
• Long term - frequent trading increases costs and is not the same as good investing.

While on Portfolio construction they say:

"We like our portfolios to reflect the conviction behind our best investment ideas. Hence within UK equities we concentrate the holdings on between 30 and 40 stocks. Around 50% will be invested in small and mid cap stocks and 50% in FTSE 100 stocks. Our portfolios tend to have a higher than average yield compared to the overall index. Individual sector weightings reflect our stock selection process. However we do tilt sector positions in accordance with our macroeconomic views. Each portfolio is regularly reviewed by the investment team."

I also note that the two main investment managers between them own around £15m of stock, while the Chairman has around £1.9m so their interests should be aligned with shareholders. I'll ave more to say on that in the final part when we look into the future.

So there is a brief update on the current position, with a lot to like but equally, quite a few issues that help to perhaps explain why this one is a little unloved by Scrooge, despite their best efforts, a bit like Bob Cratchit in a Christmas Carol. Now if that has not put you off do check back for the third and final instalment when I'll take a look into the future and how this might resolve in a profitable fashion. However, be warned if you are a Tiny Tim trader don't come back expecting to find short term gains this is very much a long term buy and hold story which will hopefully stand the test of time like the original Christmas Carol.

...about an Investment Trust based on the Dicken's story which is popular at this time of year. So without further ado here is the first part teaser of the ghost of Christmas past as it were. So as it is the festive season and as they say a picture paints a thousand words - I'll leave you today with a picture of the past of this Trust. Hopefully see you back here later this week for the present and the future installments if this has whetted your appetite?