Artemis UK Special Situations Fund
Q2 2025 update

The fund’s objective 

To grow capital over a five-year period. 

Performance

The fund rose by 14.0% during the quarter, compared with 4.4% from its first benchmark, the FTSE All-Share Index¹, and 7.5% from its second benchmark, the Investment Association UK All Companies sector² average.

For full five-year calendar year performance, please see 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. Benchmark is FTSE All-Share TR.

Overview

The ‘Liberation Day’ tariffs announced by President Donald Trump (a tax on imports on all trading partners) on 2 April led to a sharp initial fall in markets³. But the 90-day pause in applying those tariffs and subsequent negotiated trade deals led to a quick recovery.  

In the UK, companies have been facing additional national insurance costs and another material rise in the minimum wage⁴. However, we think management teams have done a good job in mitigating the impact: they have experience of dealing with significant cost pressures and inflation in the last few years.

Positives

A new chief executive at sports betting company Entain is driving improvements in the business, with the UK and US operations performing ahead of expectations. This led us to believe the medium-term profit target of its US joint venture, BetMGM⁵, is achievable.

Babcock, the defence and nuclear engineering company, with defence budgets set to rise faster than GDP⁶ and the UK’s Strategic Defence Review⁷ pointing to submarine and nuclear deterrent investment as key priorities for the government, in our view, look well placed to grow.

Transport operator FirstGroup continues to increase profit margins in its UK bus division and expects profit growth in the year ahead despite headwinds from the government’s nationalisation of its rail franchise⁸. 

We retain significant exposure to the UK consumer through companies including low-cost airline Jet2, pub and restaurant group Mitchells & Butlers, sofa and furniture group DFS and home furnishing retailer Dunelm. All continue to do well. 

Negatives

There were no material underperformers in the quarter.   

Purchases 

We added to holdings such as bank Barclays, housebuilder Barratt Redrow and sports betting company Entain, which fell sharply despite not being materially affected by tariffs. 

We also invested in three new companies.

Retailer Wickes share price fell during a period of difficult trading post the Covid lockdown-induced pull-forward of home-improvement spending. However, management set about modernising the customer experience during this time. We see significant recovery potential after years of industry decline, as well as additional market share gains.  

Future is a magazine and website media business that owns titles such as TechRadar, Homes & Gardens and Marie Claire. It also owns the price-comparison website Go.Compare. Concerns over the impact of artificial intelligence (AI) platforms, such as ChatGPT, have led it to fall to a low valuation. We believe customers and cashflows (the amount of money left over after all liabilities have been met) will prove to be more resilient.

Marks & Spencer has struggled and lost market share against competitors such as Next. It was a victim of a cyberattack that led to the suspension of online orders, but we believe there are opportunities for further investment into value and quality, leading to sustained sales and profit growth.

Sales

We have sold positions in Tesco and Imperial Brands and taken profits in Babcock and FirstGroup, which we have spent buying into companies that offer, in our view, more prospective upside.

Outlook 

We believe the UK will be a relative winner from tariffs, with a relatively low rate of 10%⁹. 

UK consumers have been saving consistently since Covid-19 and these remain largely unspent¹⁰, partly through caution but also due to high interest rates. Interest rates act as a handbrake on the economy, but we think they are likely to be cut further.

The UK market has performed well in recent years, but valuations are still attractive. It remains cheap compared with other international markets¹¹ and we would expect that gap to close as UK growth and inflation converge with other major economies¹².

Overall, we are still seeing many opportunities to buy good companies with strong operating momentum at attractive valuations. We have recycled capital to preserve the value credentials of the fund, so we remain optimistic about the potential for further strong returns.