Artemis UK Select Fund
Q2 2025 update

Fund objective

The fund’s objective is to grow capital over a five-year period. 

Performance

US President Donald Trump’s tariffs (a tax on imports), which he announced on 2 April, kicked off the second quarter and led to a sharp fall in global stock markets and a rise in US government bond yields¹ (bond yields have an inverse relationship with prices).  

Amid these developments, the US president capitulated, as more pragmatic voices in his administration appeared to take control. Most tariffs were reduced for 90 days before agreements were made, although for some countries the uncertainty is ongoing². 

Stock markets quickly recovered their losses¹ as many investors appeared to bank on the ‘TACO trade’ (Trump always chickens out). They continued to edge higher through June¹, despite elevated uncertainty as direct conflict between Israel and Iran resumed. 

Having initially felt investors were too pessimistic about the impact of tariffs, we now feel as though the pendulum of sentiment has swung too far the other way. We remain of the view that tariff costs will ultimately fall on the US consumer.  

Here in the UK, the government's botched welfare bill and U-turn on the winter fuel allowance pushed Chancellor Rachel Reeves ever closer to breaching her fiscal rules³. It appears as though it will be difficult to gain approval for spending cuts, while gilt (UK government bond) yields are likely to rise if government borrowing increases. In our view, this suggests further tax rises in the Autumn Budget are now inevitable.   

In more bad news for the government, the Office for Budget Responsibility (OBR) downgraded its UK productivity forecasts⁴, yet there may be a silver lining. If growth does disappoint, we would expect inflationary pressure to ease, allowing the Bank of England to cut interest rates more aggressively. On more than £2trn of debt⁵, a lower refinancing rate would take some of the pressure off the fiscal rules. 

Despite all of this turmoil, the Artemis UK Select Fund made 14.6% during the quarter, compared with 4.4% from its FTSE All-Share Index⁶ benchmark and 7.5% from its IA UK All Companies⁷ peer group benchmark.

For full five-year discrete performance, please see the table below. Please remember that past performance is not a guide to the future. 

Calendar year performance (%)

Past performance is not a guide to the future. Source: Artemis/Lipper Limited, class I accumulation 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. This class may have charges or a hedging approach different from those in the IA sector benchmark.

Contributors 

Our holdings in the travel & leisure sector did well this quarter, with International Airlines Group (IAG), Jet2, Ryanair, sports betting company Entain and the restaurant and pub group Mitchells & Butlers all among our top-10 relative contributors.  

IAG (the holding company for British Airways, Iberia, Aer Lingus and Vueling) posted strong first-quarter results and announced a significant order for long-haul aircraft from both Boeing and Airbus. It also confirmed it would start the second €500m tranche of its €1bn share buyback⁸.  

Jet2’s story is similar: it has a strong balance sheet, is on a low valuation relative to profits and has just announced a £250m share buyback programme⁹. The weaker dollar provided another tailwind given that it buys fuel, spare parts and planes in the US currency⁹.

Other strong performers in the second quarter included housebuilder Morgan Sindall, Rolls-Royce, Barclays and St. James’s Place.   

Detractors 

Not owning BAE Systems detracted from relative performance as its share price rose on the back of positive sentiment towards the defence sector¹⁰, although we benefited from this trend through our holding in Rolls-Royce.  

We believe BAE Systems is less likely to deliver exceptional profit growth compared with Rolls-Royce as more than half its business is exposed to the US Department of Defense¹, which we expect to increase spending by less than in central and eastern Europe.  

Among our holdings, sustainable packaging company Smurfit WestRock detracted most from performance during the quarter. It got caught up in fears around weaker paper pricing and cost pressures from tariffs, due to having large exposure to Canada, Mexico and the US¹¹. We believe industry consolidation (through company takeovers) will act as a tailwind for Smurfit Westrock and used the post-tariff weakness to add to our holding.  

Activity 

Marks & Spencer was our largest addition to the portfolio this quarter. We began buying into the retailer before the mid-April cyber-attacks and continued increasing our exposure afterwards on the back of share price weakness.  

We expect the impact of cyber disruption on profits to be material this year due to lost sales, but we are optimistic that the business can regain its momentum.  

Elsewhere, we increased our exposure to property companies, which we think will benefit from lower interest rates and improvements to the planning system. We added Bellway and West End REIT (real estate investment trust) Shaftesbury Capital to the portfolio and increased our exposure to Barratt Redrow. 

In terms of sales, we took profits from Rolls-Royce and reduced our holding in fund manager Man Group. 

Outlook 

Across the Atlantic, the passage of the ‘One Big Beautiful Bill Act’ has brought with it extensions to tax cuts, a larger fiscal deficit (when government spending is higher than revenues), higher borrowing costs and in turn a weaker dollar¹².  

Uncertainty over tariffs persists, which we expect to have a negative impact on global supply chains, end-market demand and global growth, although ultimately we believe US consumers will bear the brunt of the tariffs in the form of higher prices.

By comparison, we perceive the UK as a relative winner within the new economic order. With a trade agreement already signed, those British companies that are affected by tariffs can at last plan their medium-term response.

Tariffs have indirectly led to lower commodity prices and a stronger pound¹, two trends we expect to ease inflation pressures on the UK economy, enabling the Bank of England to continue reducing interest rates through the second half of this year. 

Additionally, we continue to believe that in a tougher economic environment, strong companies will get stronger, so our portfolio is focused on franchises that are dominant within their sectors, for example, large domestic banks and Whitbread, Tesco and Next.