Artemis Income Fund
Q1 2026 update

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

Review of the quarter

Global stockmarkets surged in January and February 2026, continuing their upward momentum after a strong 2025. Many overseas stockmarkets delivered better returns than the US, while software shares lagged behind ‘halo’ companies¹ (‘heavy assets, low obsolescence’). Businesses with physical assets such as energy, commodity and transport infrastructure companies are deemed less likely to be disrupted by artificial intelligence (AI).

Stockmarkets reversed course abruptly in March. War in Iran and the closure of the Strait of Hormuz caused oil prices to skyrocket. Higher energy prices raised fears of inflation and dashed hopes that interest rates would be cut.

UK shares started the year strongly but fell sharply in March. Because the UK market has a lot of oil and gas companies, it might have been expected to hold up better. However, gains in energy shares were cancelled out by heavy losses elsewhere, especially banks and companies dependent upon consumer spending.

Performance

The first three months of 2026 were difficult for our portfolio. At first, this was because investors were worried about AI destroying some companies’ software-as-a-service (SaaS) business models. These concerns led to a sell-off in software stocks and tech-adjacent companies, dubbed ‘the SaaSpocalypse’.

To reduce this risk, investors gravitated towards businesses with physical assets, such as commodity producers, which are not a large part of our portfolio. 

After war broke out in Iran, we had less exposure than our FTSE All-Share benchmark² to energy and to some of the larger, more defensive companies that proved resilient in March.

Against this backdrop, the fund made a loss of -2.9% for the three months ending 31 March 2026, against a gain of 2.4% for the FTSE All-Share index (its first benchmark) and a fall of -0.9% for the IA UK Equity Income sector³ (its second benchmark).

For full five-year discrete performance, please see below. 

Past performance is not a guide to the future.  

Source: Lipper Limited/Artemis to 31 December 2025 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.

Negatives 

Shell makes up 2% of our fund versus 7% of the FTSE All-Share, which hurt our relative performance when oil prices shot up.

We don’t own Glencore (natural resources) or Rio Tinto (mining), which performed well during the quarter⁴ and are large positions in our benchmark. Commodity prices have risen this year due to conflict in the Middle East, as well as increased demand driven by data centre construction and electrification, while supply remains tight.

Investing in commodity companies is difficult, we have found. It is hard to judge what sets them apart from competitors and to forecast their future earnings and profits. Because of this, our fund usually invests less in natural resources than our benchmark. When commodity prices rise sharply, our relative performance can suffer as a result.

Finally, not owning BAE Systems reduced the fund’s performance by about half a percentage point. Its share price rose strongly as global tensions increased⁵. We think BAE’s shares are too expensive given how much cash and profits we expect the company to make.

Some of the shares we do hold ran into difficulty during the quarter, including Informa, 3i Group and EasyJet.

Informa runs trade shows around the world. Its share price fell because of worries about the global economy and because it has some exposure to events in the Middle East. We think other investors underestimate Informa. Its events are highly profitable⁶ and they produce large amounts of customer data, which Informa is using to improve customer service and generate sales leads. 

Private equity company 3i underperformed because Action, its discount retail business, experienced weaker-than-expected sales and is embarking on a costly expansion into the US⁷. We think the stockmarket overreacted. We believe Action has proved its ability to expand across Europe and if its US venture is successful, it could be a major growth driver. We bought more shares after the price fell.

EasyJet’s share price suffered along with airlines globally due to travel disruption and higher fuel prices, although it has taken steps to protect itself against rising fuel costs⁸. We calculate that its shares in aggregate are cheaper than the replacement costs of its aircraft, effectively placing no value on its brand, its valuable airport slots or its fast-growing holidays business. We increased our holding in March.

Positives

BP benefited from the conflict-induced rally in oil prices and made the largest contribution to our fund’s returns during the quarter. In 2025, BP made its biggest offshore discovery in 25 years at Bumerangue, off the coast of Brazil⁹. The discovery is still being analysed but we think Bumerangue could be worth about 15% of BP’s current value.

Renewable energy generator SSE was another strong performer. Last year, SSE announced a £33bn five-year investment plan to increase its exposure to UK electricity networks¹⁰. As the business becomes more reliant on regulated networks, we expect its earnings to become more predictable.

Supermarket giant Tesco is unlikely to be disrupted by AI, in our view, and we think this is the reason its share price rose during the quarter. We also like Tesco because it has a dividend yield¹¹ of more than 3%¹² and the company has been buying back shares.

Activity

When share prices fell in March, we added to several of our holdings, including EasyJet and 3i. On the other side of the ledger, we reduced our holding in Next, which has been an excellent performer since we invested in 2020, with a total return of 127%. The market is beginning to recognise that Next is no longer primarily a high-street retailer but rather a retail aggregator with a global portfolio of brands. We think the share price looks expensive and could become vulnerable to AI-related fears, so we decided to take profits.

Outlook 

This has been one of the more difficult patches for the fund in recent memory but we won’t be making any knee-jerk changes to our portfolio or investment process. We have found that sticking to our knitting has helped us to recover from periods of underperformance in the past.

We remain focused on analysing companies’ cashflows – the money left over after operating costs and other expenses have been paid. Positive cashflow is what enables companies to pay dividends, buy back shares and invest for future growth. We look for companies whose cashflows are under-appreciated and whose share prices are therefore attractive. We remain long-term investors, with an average holding period of more than eight years. 

We continue to believe in our portfolio. Several of our companies have met or exceeded earnings expectations and have increased dividends recently. We also believe our fund offers good value, with a higher dividend yield than the FTSE All-Share index and a portfolio of shares that, on average, are more than 10% cheaper than the broader market¹³.