Artemis High Income Fund
Q2 2025 update

Fund's objective

The fund’s objective is to provide a combination of a high level of income and capital growth, before fees, over a rolling five-year period. The manager defines a high level of income as equal to, or in excess of, the average yield of the IA Sterling Strategic Bond sector¹.

About the fund  

The Artemis High Income Fund gives investors access to the income-generating potential of a blend of bonds and shares. It is actively managed.

Dividend-paying company shares – These are shares in companies that return a portion of their profits to their shareholders through regular cash payments (‘dividends’).  

High-yield bonds – High-yield bonds are issued by companies that ratings agencies (such as S&P and Moody’s) deem to be at greater risk of defaulting on their debts. As their name suggests, they offer a higher ‘yield’ (rate of interest) to compensate for the higher level of risk.  

Investment-grade corporate bonds – These are issued by companies with higher credit ratings. These are businesses that ratings agencies consider to be at relatively low risk of defaulting on their debts.  

Government bonds – These are widely viewed as being among the safest bonds (governments in developed economies rarely default on their debts). The interest rate, or ‘yield’, available here is lower than it is on high-yield and investment-grade corporate bonds – but they can provide a useful counterweight to the fund’s holdings in more economically sensitive bonds and shares. 

Overview 

The second quarter began with the shock of ‘Liberation Day’ on 2 April, when US President Donald Trump announced hefty tariffs (taxes on imports) on America’s trading partners, sparking widespread market volatility². May and June saw a welcome recovery.  

We expect tariff concerns and headlines about trade deals to rumble on, but we feel their ability to torment financial markets has waned. They now appear to have a response function in the so-called TACO trade³ (Trump always chickens out), which refers to Trump’s tendency to make severe tariff threats and then delay them to allow time for trade deals to be negotiated and stock markets to recover. 

Performance 

Against this backdrop, the fund returned 3.7% during the second quarter – the second-best return in the entire IA Sterling Strategic Bond sector and considerably higher than the peer group average of 2.3%. 

May was a particularly strong month for the fund, during which it delivered a 1.8% total return, well above the 0.1% made by its peer group average. The fund’s holdings in shares and in short-dated high-yield bonds, along with its relatively light government bond exposure and avoidance of longer-dated bonds, contributed significantly to performance.  

The fund’s long-term track record remains robust: it is the best performer in the IA Strategic Bond sector over three years and the second best over five, illustrating the benefits of allowing higher income to compound. Compounding refers to the way income or capital gains enlarge the original amount invested, creating a snowball effect that allows savings to grow over time. The fund’s returns have been unlocked by higher bond yields (the yield is the annual income paid to investors on an asset expressed as a percentage of its price) over the past three years.

Calendar year performance (%)

Past performance is not a guide to the future. Source: Artemis/Lipper Limited, class I distribution units, GBP, to 30 June 2025. All figures show total returns with dividends and/or income reinvested, net of all charges. Performance does not take account of any costs incurred when investors buy or sell the fund. Returns may vary as a result of currency fluctuations if the investor's currency is different to that of the class.

Contributors  

Our top-performing holdings during the quarter included bonds issued by game-maker Asmodee, shipping company Seaspan and footwear retailer Foot Locker. Additionally, healthcare logistics provider Owens & Minor saw its bonds rally after it cancelled a proposed acquisition of Rotech⁴, a peer in the medical-supply distribution industry.  

On the shares side, our top contributors were Barclays, NatWest, private equity company 3i Group, Tesco and the sports betting and gaming group Entain, whose valuation jumped following an improved outlook for its joint venture with MGM Resorts, BetMGM⁵. 

Detractors 

Mobico, the UK and US transport operator formerly known as National Express, was a poor performer during the quarter. It has suffered from difficulties in its US school bus business as well as its German bus networks⁶, but we see the sell-off as being overdone. The company has successfully disposed of its US school transport business and plans to use the proceeds to deleverage (pay down debt). While its German business remains in a restructuring phase, profits are dominated by Mobico’s strong Spanish operation, which continues to see good performance⁷. 

Our small, distressed position in the US budget furniture retailer At Home, which announced it had entered Chapter 11 bankruptcy⁸, was another detractor.  

Shares that disappointed this quarter included oil & gas company TotalEnergies, biopharma company Sanofi and Deutsche Telekom⁹. 

Activity  

We bought bonds from the following companies in May and June: 

• Aggreko, the producer of industrial generators 
• Arqiva, the UK communications infrastructure owner, which we believe benefits from long-term inflation-linked contracts with broadcasters and telecom operators  
• Clariane, the French care-home provider 
• Clarivate, which provides a range of data sets and services for use in academia, life sciences and the intellectual property management sectors; we like the high barriers to entry and mission-critical nature of its offering 
• Currenta, which manages and operates Chempark, one of the largest chemical sites in Europe¹⁰ 
• Cvent, the US event-management software provider 
• DNO, the Norwegian oil & gas company 
• Flutter, the online gaming company 
• Shift4, the US payment processing company  
• TeamSystem, the Italian software development company 
• Together, the UK specialist lender 
• Urbaser, the Spanish waste management business 

Elsewhere, we topped up our position in W&T Offshore, the oil & gas producer, at the start of May given it had significantly lagged the broader market recovery. We also increased our exposure to Nufarm, the Australian crop science specialist, which we believe is getting closer to disposing of its seed business¹¹ in a potentially deleveraging transaction.  

Meanwhile, we switched our shorter-dated (2027) exposure to the video game producer Ubisoft Entertainment into longer-dated (2031) bonds, given the underperformance of the latter, which in our view was unjustified.   

In the secondary market (bonds sold by other investors rather than the issuer), we added some new exposure in US sports apparel maker Under Armour, which we see as benefiting from a turnaround and growing strength in its category. We also added a position in 2028 bonds issued by UK and US transport operator Mobico. 

Alongside these additions, we bought some short-dated bonds in Energean, the Mediterranean oil & gas producer. Its bonds have underperformed since a deal to dispose of its non-core assets to private equity firm Carlyle fell through¹². This deal would have allowed the business to focus on its Israeli fields, which are highly profitable with low lifting costs (post-drilling extraction costs). However, while this was undoubtedly a disappointment, the underperformance of the bonds looks extreme considering the high levels of underlying cash generation. 

In terms of sales, we trimmed our position in Cloud Software, which owns the Citrix remote login software. We have held these bonds for the past few years and initially believed investors were underestimating the massive cashflow generation potential of this business under its new owners. It appears the market has come to agree with us and these bonds have performed well. They now offer lower levels of potential excess return than when we bought them.  

We made a few sales in June where we felt valuations had become too stretched to ignore, including US domestic services website Angi, desktop game maker Asmodee, North American waste disposal operator GFL Environmental, German tier 1 auto supplier IHO and US agricultural and mining chemical producer LSB Industries.  

We also trimmed our holdings in the government bond space given the strong performance seen over the past few months, reducing our holdings of US Treasury Inflation-Protected Securities¹³ (TIPS) and gilts (UK government bonds). 

Outlook 

One of the questions we are often asked is whether in a world of higher interest rates and higher yields from government bonds, we should be owning fewer high-yield bonds and instead focus our efforts on government bonds? In effect, if we can get a decent income on government bonds, why take the additional risk of going into corporate bonds? 

We are firmly of the belief that in periods such as today when interest rates are higher, investors should be leaning into higher-yielding bonds, not away from them, because high yield bonds are also paying higher levels of income. 

By way of example, let’s imagine two different environments, but with the same spread – or yield difference – between government and high-yield bonds: 3.5% in this case. On the one hand, let’s picture a theoretical world of higher interest rates with government bonds paying a 5% yield and high-yield bonds delivering an average income of 8.5%. On the other hand, if interest rates were very low, government bonds might be paying out 1% versus 4.5% from high-yield bonds.  

The additional spread from high yield is exactly the same in both of these scenarios, but the additional return from being in high yield in the higher-rate scenario would be much greater. So in a higher rate environment, investors are losing out on a lot more by not holding high-yield bonds. 

We retain our conviction that investing in high-yielding assets in a diversified fashion with strong security selection – and increasing the income over time by investing some of the fund in shares – is a compelling strategy.