Ratings agencies are reviewing their recommendations of Temple Bar (TMPL), after manager Alistair Mundy's departure cause the board of the £480m investment trust to serve a 12-month notice on its management group Ninety One.
In a statement published yesterday (20 April), the board concluded that "it is appropriate to conduct a review of the future management of the trust" given the "current circumstances".
Ninety One had confirmed on Friday Mundy would take a leave of absence due to ill health.
However, the board said it does not "wish to pre-empt" the results of the review and added it is "certainly possible" that Ninety One will continue to manage the trust.
"The board believes that it is prudent at this time to serve 12 months protective notice on TMPL's manager, Ninety One UK, as per the terms of the management agreement," it added.
The investment trust, which Mundy has managed for more than 17 years, will be taken over by fellow members of Ninety One's value team Alessandro Dicorrado and Steve Woolley, who also co-run Ninety One's Investec Global Special Situations and Investec Global Value Equity open-ended funds.
In addition to Temple Bar, they will be taking the reins of Mundy's Cautious Managed, UK Special Situations and UK Total Return funds.
On Friday, Morningstar said it would place TMPL's rating under review while its analysts "assess the impact of the news", "given Mundy was an important factor in our conviction in the strategy".
Winterflood took a similar view, noting it had removed the trust from its model portfolio for the time being as its analysts had not yet met the two new managers."
For existing shareholders, the broker said the decision whether to hold or sell "rests on their view of whether the market is likely to see a value-oriented recovery and whether TMPL is best placed to capture that".
Meanwhile, analysts at Numis Securities noted the persistence of the trust's premium rating despite weak performance had come about due to Mundy's "strong following with retail and a clearly defined investment approach".
"We believe the new manager team will have to clearly communicate their approach and views in order to maintain the faith of investors who may having been backing a well-renowned manager," they said.
The UK equity income trust, which has a strong value bias, is currently trading on a 6.5% discount to NAV, compared to its one-year and three-year average discounts of 3.3% and 4.5% respectively, according to AIC data.
In total return terms, the trust has been bottom decile relative to its average peer in the IT UK Equity Income sector over one, three and five years, having lost a respective 44%, 36% and 28% over these time frames.
It is also in the bottom decile for its total return over the last decade, having gained 28.8% compared to its sector average's total return of 72.8%, according to data from FE fundinfo.
At the end of last month, Temple Bar's board insisted Mundy remove the trust's gearing and sell some of its higher-octane positions after its shares more than halved in value within one month of the coronavirus pandemic.
A spokesperson from Ninety One said: "We understand and respect the Board's decision and also acknowledge this does not pre-empt a change in the existing management arrangements. Our focus is on managing the trust's portfolio, delivering strong performance and supporting the Board where appropriate throughout the process."