Temple Bar points to dollar fall on UK dividends

The £398.9m Temple Bar investment trust has warned that the effect of the dollar fall against sterling might impact on UK dividends, and has defensively positioned itself against any downturn.
The trust primarily holds equities for growth and uses the dividends for income. In his annual report, Temple Bar chairman John Reeve said that although the worst fears over dividends for the UK equity markets were unrealised in 2003, “it is important to highlight the significance the sterling/dollar exchange rate has for expectations in 2004.
“A growing number of large companies, such as HSBC and Rio Tinto, pay their dividends in dollars; with the large decline in that currency relative to sterling over the last two years, this has begun to have a noticeable effect on dividends receivable.”
HSBC makes up 5.7% of the portfolio, the largest holding as at the end of December. The final dividend is being increased by 2.5% to 17.8p. Net asset value increased by 25% versus the FTSE All-Share index return of 20.9% and the FTSE 350 Higher Yield return of 20.8%.
During 2003, Temple Bar changed its benchmark to the FTSE All-Share after deciding the Higher Yield index was too volatile; the manager, Alastair Mundy at Investec, who took over in October 2002, is also now being measured on his rolling five-year performance in order to encourage long-term investment decisions.
Reeve says he remains less sanguine about whether the recovery is self-sustaining and “feels it right to remain positioned with a fairly defensive portfolio”, with protection coming from the high yields.