Artemis UK Smaller Companies Fund
Q4 2025 update
Source for all information: Artemis as at 31 December 2025, unless otherwise stated.
CAPITAL AT RISK. All financial investments involve taking risk and the value of your investment may go down as well as up. This means your investment is not guaranteed and you may not get back as much as you put in. Any income from the investment is also likely to vary and cannot be guaranteed.
This is a marketing communication. Before making any final investment decisions, and to understand the investment risks involved, refer to the fund prospectus (or in the case of investment trusts, Investor Disclosure Document and Articles of Association), available in English, and KIID/KID, available in English and in your local language depending on local country registration, available in the literature library.
Fund objective
The fund’s objective is to grow capital over a five-year period.
Overview
The share prices of small UK companies rose much more slowly than larger businesses last year1. We think this disparity was mainly due to a lack of investor confidence in the domestic economy. Roughly 60% of small companies’ revenues are earned in this country, whereas it’s only 20% for the UK’s largest 1002. Yet we see this as an opportunity to invest in market-leading brands, such as Dunelm, DFS, Moonpig, Greggs and Halfords, whose share prices we perceive to be cheap.
Performance
The fund's performance was flat for the fourth quarter (a 0.1% return3), compared with a gain of 2.2% for its first benchmark, the Deutsche Numis UK Smaller Companies excluding Investment Companies index4, but a small loss for its second benchmark, the IA UK Smaller Companies sector5 (-0.4%).
For the 2025 calendar year, the fund made 5.4% – enough to put it in the top half of its IA UK Smaller Companies sector (which gained 3.8%), but behind the 12.7% made by its first benchmark6.
This time last year, we were optimistic about the prospects for UK small caps7. So far, we’ve been wrong. We feel that investor confidence in the sector remains lacking, while politics has been a headwind. Frequent policy changes and the delayed Budget sapped confidence8. Yet despite the tricky politics and dismal investor sentiment, the underlying performance of our companies has remained positive9. To us as long-term investors, this is what is most important and we believe it bodes most positively for the future.
| 2025 | 2024 | 2023 | 2022 | 2021 | |
|---|---|---|---|---|---|
| Artemis UK Smaller Companies | 5.4% | 9.3% | 4.8% | -8.3% | 30.0% |
| Deutsche Numis Smaller Companies Exc Inv Com TR | 12.7% | 9.5% | 10.1% | -17.9% | 21.9% |
| IA UK Smaller Companies sector average | 3.8% | 6.3% | 0.0% | -25.7% | 22.9% |
Past performance is not a guide to the future.
Source: Lipper Limited to 31 December 2025 for class I accumulation units in GBP. 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.
Positives
Norcros (bathroom and kitchen products), GB Group (fraud prevention), IG Group (online trading), Fuller, Smith & Turner (Fuller's pubs) and Mears Group (housing) all performed well during the fourth quarter.
Norcros10, Fuller’s11 and IG Group12 all reported higher earnings. For GB Group, first-half results13 were merely in line with expectations, yet this was enough to prompt a modest rally because, in our view, the share price was incredibly cheap. Mears’ share price made a partial recovery from weakness earlier in the year14 as it increased its profit expectations15.
Negatives
Some of the companies we hold in the media and aerospace & defence sectors performed poorly during the fourth quarter and our lack of exposure to precious metals and mining shares counted against us.
Our worst share during Q4 was Telecom Plus, which reported lower interim profits (as expected) due to a rephasing of metering and other energy-related costs16. There was also speculation it would acquire fellow energy provider OVO Energy17.
Purchases
We recently added Bloomsbury Publishing to the fund, which we believe is becoming a more stable business due to growth in its academic publishing division and because its backlist now accounts for a higher proportion of sales: Harry Potter continues to be a bestseller 28 years after the first book was published18 and we expect the franchise to benefit from the new HBO series in 2027. Meanwhile, Disney has acquired the film rights for Katherine Rundell's novel Impossible Creatures19.
We also added discoverIE, which designs and manufactures specialist electrical components.
Sales
We sold out of QinetiQ, Costain and Headlam during the quarter. Security and defence contractor QinetiQ remains heavily dependent on UK defence spending20 and, despite increases, we think government budgets are coming under pressure from a growing number of competing priorities.
Costain's shares had run up a long way21 and we were concerned that the infrastructure company's margin targets may not be achievable. Flooring specialist Headlam has been persistently weak, in our view, and we think it faces growing competitive challenges.
Outlook
We are, if anything, even more excited about the prospects for UK smaller companies than we were this time last year. The underlying businesses of the companies we invest in have performed solidly, if unspectacularly, but we think their share prices sit well below their true worth. Management teams appear to agree with us because companies have been buying back their own shares22 at a level we have never seen before during our careers23.
Notes and references
1Source: Lipper Limited as at 31 December 2025
2https://www.lseg.com/en/insights/ftse-russell/the-uks-very-global-country-index
3Source: Lipper Limited as at 31 December 2025
4The fund’s first benchmark is the Deutsche Numis UK Smaller Companies (excluding investment trusts). It is a widely-used indicator of the performance of the UK smaller companies stockmarket, in which the fund invests. It acts as a ‘comparator benchmark’ against which the fund’s performance can be compared. Management of the fund is not restricted by this benchmark.
5The fund’s second benchmark – and its peer group – is the IA UK Smaller Companies sector. This is a group of other asset managers’ funds that invest in similar asset types as this fund, collated by the Investment Association. It acts as a ’comparator benchmark’ against which the fund’s performance can be compared. Management of the fund is not restricted by this benchmark.
6Source: Lipper Limited as at 31 December 2025
7Market capitalisation (sometimes referred to as 'market cap') is the total value of a company, calculated by multiplying the number of shares in issue by the current price of the shares. Companies are often referred to as being 'mega-cap', 'large-cap', 'mid-cap' and 'small-cap', reflecting their relative total value (although small-cap can still mean companies with values in the hundreds of millions or even low billions). Different markets attach different values when seeking to define the differences between these categorisations.
9Source: Artemis as at 31 December 2025
10https://www.norcros.com/media/jzuhex2f/norcros-interim-results-presentation-2025.pdf
11https://www.fullers.co.uk/corporate/investors/financial-reports
12https://www.iggroup.com/investors/results-reports-and-presentations
13https://www.gbgplc.com/investors/resources/reports-and-presentations/
14Source: Bloomberg
15https://www.mearsgroup.co.uk/investors
16https://www.telecomplus.co.uk/investor-information/results-reports-presentations
18 & 19https://www.bloomsbury-ir.co.uk/financial/f_latest.asp
20https://www.qinetiq.com/en-gb/investors
21Source: Bloomberg
22Share buybacks refer to the reacquisition by a company of its own shares. Instead of (or as well as) paying dividends, it is an alternative way for a company to return money to shareholders. In most countries, a company is able to repurchase its shares by paying cash to existing shareholders in exchange for a reduction in the number of shares outstanding.
23Source: Artemis, Bloomberg as at 31 December 2025.
Risks specific to Artemis UK Smaller Companies Fund
- Market volatility risk The value of the fund and any income from it can fall or rise because of movements in stockmarkets, currencies and interest rates, each of which can move irrationally and be affected unpredictably by diverse factors, including political and economic events.
- Currency risk The fund’s assets may be priced in currencies other than the fund base currency. Changes in currency exchange rates can therefore affect the fund's value.
- Charges from capital risk Where charges are taken wholly or partly out of a fund's capital, distributable income may be increased at the expense of capital, which may constrain or erode capital growth.
- Smaller companies risk Investing in small companies can involve more risk than investing in larger, more established companies. Shares in smaller companies may not be as easy to sell, which can cause difficulty in valuing those shares.
Important information
The intention of Artemis’ ‘investment insights’ articles is to present objective news, information, data and guidance on finance topics drawn from a diverse collection of sources. Content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security or investment by Artemis or any third-party. Potential investors should consider the need for independent financial advice. Any research or analysis has been procured by Artemis for its own use and may be acted on in that connection. The contents of articles are based on sources of information believed to be reliable; however, save to the extent required by applicable law or regulations, no guarantee, warranty or representation is given as to its accuracy or completeness. Any forward-looking statements are based on Artemis’ current opinions, expectations and projections. Articles are provided to you only incidentally, and any opinions expressed are subject to change without notice. The source for all data is Artemis, unless stated otherwise. The value of an investment, and any income from it, can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested.
