Artemis UK Future Leaders plc
Q1 2026 update

Objective 

The investment company aims to achieve long-term total returns for shareholders, primarily by actively investing in a broad cross-section of small to medium-sized UK quoted companies.

Review

In the first three months of this year, the trust's net asset value (NAV) decreased by 12.6% versus a decline of 6.6% in its benchmark, the Deutsche Numis Smaller Companies plus AIM excluding Investment Companies¹ index. We believe the trust's weak absolute performance was mainly driven by concerns about the conflict in Iran and the wider repercussions, should inflation and interest rates climb higher and business and consumer confidence fall. Meanwhile, we attributed our weak relative performance to the falling share prices of our media and technology holdings.

Past performance is not a guide to the future.

Source: Lipper Limited, priced at midday, data to 31 March 2026 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 trust. Returns may vary as a result of currency fluctuations if the investor's currency is different to that of the class.  

*Artemis assumed management of the trust on 10 March 2025. 

Negatives

Many of our media and software holdings suffered from the perceived threat of artificial intelligence (AI), including publisher Future, consultancy Next 15, LBG Media and identity verification company GB Group. We see the risks as being overstated and not reflecting the importance of these companies' first-party data, the opportunities that AI may create for them in terms of cost savings, or their cheap valuations².

Some of the trust's consumer-facing holdings were also weak (for example, housebuilder MJ Gleeson, package holiday operator On the Beach and furniture retailer DFS). Although we do not believe the Iran war changes the three- to-five-year outlook for these businesses, it has affected the near-term outlook. Consumer confidence has been hit³, inflation is higher⁴ and interest-rate expectations have changed⁵. We met DFS towards the end of March and the company told us it is already responding to a weaker backdrop by reducing capital expenditure on store refurbishments and cutting its marketing budget.

Positives

There were no obvious themes among the trust's winners during the quarter:

• Ashtead Technology (an energy-equipment rental company) announced its profits were towards the top end of expectations⁶.

• Oxford Instruments, a provider of scientific tools, confirmed that it had met expectations for the year to March, which was reassuring given the first half of the year had been weak⁷. We have since sold our holding on valuation grounds.

• Young & Co.’s Brewery reported strong sales over the Christmas period⁸.

• Bloomsbury Publishing (a new holding) upgraded profit expectations after announcing the publication dates for the next two novels by bestselling author Sarah J Maas⁹.

Purchases

We started new holdings in Tristel and PZ Cussons. We also added to our existing holding in NIOX, which manufactures medical devices for people suffering from respiratory diseases.

• Tristel supplies chlorine dioxide for disinfecting medical devices (for example, ultrasound probes) in hospitals. Although the shares are not especially cheap in our view, we think its sales growth and profit margins more than make up for this. It is in the early stages of entering the US market¹⁰, which we think has the potential to transform its business.

• PZ Cussons is a consumer goods business focused on four main markets: the UK, Australia, Nigeria and Indonesia. We feel the amount of cashflow (the money left over after all liabilities have been met) it generates makes the company an attractive proposition. 

Outlook

We believe events in the Middle East may have pushed back a recovery in UK smaller companies, because higher inflation could delay interest-rate cuts and keep consumers cautious.

However, we don’t think the Iran conflict will change our three- to five-year outlook. We would note three differences between the situation today and the inflation shock of 2022: 

• The labour market is loosening today¹¹ (meaning there is a falling number of vacancies), so we think wage-driven inflation pressure will be lower.

• Gas prices have risen less than they did in 2022 (so far)¹².

• Non-energy natural resources have been less affected¹³.

With regards to the trust's portfolio, we believe the main risk comes from our overweight (a larger position than the stockmarket average) to UK consumer discretionary (businesses that depend on consumers having spare money). We have trimmed its exposure to that part of the market. In our view, UK wage growth is likely to be flat this year after inflation is taken into account. Therefore, we think any growth in consumer spending will be reliant on the savings rate (the percentage of after-tax personal income that an individual or household sets aside) falling. Because of the high starting point for the UK household savings ratio (around 10%¹⁴), we think there is still scope for consumer spending to exceed expectations once confidence recovers.

AI threats are overstated

We believe the recent falls in shares seen as ‘AI-threatened’ are excessive as we don’t yet think anyone has true clarity on how disruptive the technology will be. There are three main reasons for this view.

• Proprietary data: If AI hoovers up all publicly available data, we believe privately owned first-party data will become more valuable. We think this will benefit the trust's holdings in companies such as GlobalData and YouGov.

• Low valuations: Valuations of the trust's holdings in companies that are seen as ‘at risk’ look attractive to us. If a share’s valuation is high, we think you have to be very confident that your most optimistic case is correct; but if it trades on a low valuation, we think you only need to believe the pessimistic outlook might be wrong. 

• Overlooked opportunities: Smaller companies typically underperform in the early stage of a ‘crisis’ and then bounce back strongly thereafter¹⁵. We believe that many of the companies that are seen as being most affected also have some of the biggest potential opportunities from using AI.

Opportunities when company specifics are overlooked

We believe that when moves in stockmarkets are dominated by major global events such as the war in Iran, it can cause investors to overlook investment fundamentals.

Share-price moves in March (and in early April) have been dominated by global events, which we think tend to be both fast changing and difficult to take a unique view on. Share prices can get disconnected from fundamentals at times like this, we have found, and company-specific news can easily be overlooked.

We think social-housing maintenance provider Mears offers one example. In March, Mears reported strong results, upgraded its expectations for the year ahead and reported that its order book (of contracted future revenues) had increased by 38%¹⁶. Yet the shares were down 8% over the month¹⁷. Over the past year, Mears’ 2026 profit expectations have increased by 36%¹⁶, but the share price has fallen by 16%¹⁷.

We view this kind of gap between business performance and the share price as an opportunity for long-term, active investors.