Artemis UK Special Situations Fund
Q1 2026 update

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

Overview

Two themes dominated stockmarkets in the first quarter: artificial intelligence (AI) and the war in Iran.

In early February, Anthropic launched a new model, Claude Opus 4.6¹. The subsequent announcement of new AI tools targeting specific industries sparked sharp falls in the shares of those companies perceived to be at greatest risk of disruption².

As February ended, the US partnered with Israel to launch airstrikes on Iran, which responded by closing the Strait of Hormuz. Around 20 million barrels of oil would normally pass through the Strait each day³, so its closure led to a sharp spike in the price of the commodity to over $100 per barrel⁴, with natural gas also being affected⁵.   

Performance

By the end of the quarter, the FTSE 100 index, home to heavyweight energy companies Shell and BP, had risen by 3.4%⁶. In contrast, the mid-cap FTSE 250 index, which has a greater bias towards companies sensitive to UK consumer spending, had fallen by 5.1%⁷. The net result was that our fund fell by 4.9% over the quarter, while its first benchmark, the FTSE All-Share index⁸, returned 2.4%, and its second benchmark, the IA UK All Companies sector average⁹, fell by 2.1%.   

Discrete calendar-year performance

Past performance is not a guide to the future.  

Source: Lipper Limited/Artemis to 31 March 2026 for class I distribution units, 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.

Detractors 

Concerns around private credit (non-publicly traded debt instruments) led to a fall in the shares of ICG, the alternative asset manager¹⁰. However, we believe it has limited exposure to the worst-affected parts of this market and its structure should provide some stability. 

Shares in betting companies Entain and Flutter Entertainment fell for two main reasons: the increase in gaming duty announced in the UK's Budget at the end of last year¹¹ and the rapid growth of prediction markets in the US¹². In the short term, we believe both businesses can mitigate the impact of tax changes through cost-saving measures such as reducing sponsorship. Over time, we also expect both companies will gain market share as smaller operators exit. 

In response to the weakness, we added to our existing holding in Entain and started a new position in Flutter.

Publisher Future warned that Google's AI overviews were having a negative impact on traffic to its websites from conventional searches, squeezing its advertising revenues¹³. We believe Future’s initiatives to reduce its reliance on Google offer reasons for optimism.  

Online travel agent On The Beach reported a slowdown in bookings for its holidays to destinations such as Turkey, Cyprus and Egypt due to the conflict in the Middle East¹⁴. We expect it to recover in the months ahead.  

Contributors

Our strongest performer was Beazley, which received an improved bid approach from Zurich at £13.35 per share¹⁵. This represents a healthy uplift from our initial purchase price of £6.82 in July 2024¹⁶.

Oxford Instruments performed well after releasing a positive trading update that showed orders continuing to recover from weakness in the previous quarter¹⁷.  

Trading website IG Group's turnaround under its new management continued to gain momentum¹⁸. New customers are being attracted by improved product features¹⁹ and we are confident the volatility seen in financial markets in March should translate into increased trading activity.

Pharmaceutical giant GSK's decision to replace Emma Walmsley with Luke Miels as chief executive was warmly received by the stockmarket²⁰. The company's results for 2025, meanwhile, came in marginally ahead of consensus while sales guidance for 2026 was in line with expectations²¹. 

Activity

We added three new holdings in the quarter: Flutter Entertainment (as mentioned above), RELX and Videndum. We supported Rosebank Industries' fundraising. And we sold our holdings in Smiths Group and Morgan Advanced Materials.

RELX is a provider of data and information tools to the insurance, scientific and legal professions. Recent advances in AI have caused investors to question its business model²². The company, however, remains confident in its growth and believes AI will allow it to enhance its offering²³. We see the potential for its future results to dispel investors' recent fears.

Videndum, a provider of broadcasting equipment, has faced challenges created by the Hollywood screenwriters’ strike and President Trump's trade tariffs²⁴. However, we know the new executive chairman, Stephen Harris, from his time as the chief executive of Bodycote and have been impressed by his cost-saving programme and negotiations with the company's lenders. 

We sold the fund's long-term holding in Smiths Group as we feel its share price now reflects the quality of its business. 

We initially invested in Morgan Advanced Materials in September 2023 as we felt it was moving towards faster-growing markets. However, momentum has lagged our expectations, so we sold what remained of our holding.

Outlook

While Russia's invasion of Ukraine in 2022 may seem to offer a recent parallel to the war in Iran, we are cautious about placing too much reliance on the comparison. In our view, the starting point for the economy and for financial markets today is quite different to four years ago. 

Unemployment is higher²⁵ and inflation is lower²⁶. Valuations of many consumer-focused stocks, meanwhile, are cheaper today than they were when the Ukraine war broke out²⁷.

In the fund, our flow of new investment ideas remains strong. We can see opportunities in smaller and medium-sized companies, where we do not believe share prices reflect company fundamentals. For us, this signals opportunity and we are excited about the potential returns from these overlooked parts of the UK market.