Artemis UK Future Leaders plc
Q2 2026 update

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

Changes to the team

Anna Pugh joined Artemis' UK smaller companies team as an analyst in May. Anna, who has 11 years’ experience, previously worked at River Global Investors, where she focused on UK small-cap and micro-cap strategies. She has a first-class degree in economics from the University of Bath and is a CFA charterholder.

Review 

Artemis UK Future Leaders bounced back strongly during the second quarter of 2026. In net asset value (NAV) terms, it returned 10.0% compared with a return of 8.6% from its benchmark, the Deutsche Numis Smaller Companies plus AIM (excluding investment companies) index¹. 

The trust's performance over the past year has been poor – it has lost 6.7% in NAV terms compared with a return of 6.1% from its benchmark index. This was because the share prices of the companies it owns became cheaper compared with the wider market, rather than because their profits weakened. 

In our view, the trust's holdings now look inexpensive compared with other UK smaller companies, which themselves look cheap compared with larger UK companies (and cheaper still when compared with many global stockmarkets).

Past performance is not a guide to the future.

Source: Lipper Limited, priced at midday, data to 31 December 2025 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. 

Positives

Last quarter we highlighted Mears, which maintains social housing, because its share price had fallen even though its expected profits had risen². We believed investors would eventually notice the difference and the shares rose during the quarter despite little significant company news. We sold some of the holding to lock in part of the gain.

Tatton, an asset manager, benefited from continued inflows of new money into its funds. Together with rising stockmarkets, this led to a double-digit increase in expected profits³.

Halfords, the car and cycling retailer, saw expected profits rise by 10% in June due to strong sales growth and higher profit margins⁴.

Negatives

Several of the largest negatives for relative performance were companies the trust did not own whose shares rose strongly. These included Tate & Lyle, Raspberry Pi and Watches of Switzerland.

Telecom Plus, which provides services such as energy and broadband, performed poorly. It cut prices in response to stronger competition, with the aim of encouraging more customers to use more of its services (consumers who use multiple products are more valuable and tend to stay for longer than those who only take one). It reduced expected profits by 40%⁵, but the shares were already weak and we think they now look inexpensive compared with expected profits.

While first-half revenues at LBG Media (LADbible) grew strongly, there was a rapid shift away from high-margin Facebook revenues and towards lower-margin direct ones. Although the speed of change prompted a downgrade to profit expectations⁶, we think reducing its dependence on Facebook should ultimately improve the quality of LBG’s earnings.

Results at identity verification company GB Group were in line with expectations, but the company opted to increase investment in its GBG Go product, leading to a profit downgrade for 2027⁷. We do not think the business is growing fast enough to fund additional investment without downgrading future profits. However, management is confident the investment will pay off in the long term.

Purchases

We started a holding in AB Dynamics, the global market leader in car testing. Management aims to double sales and triple profits over the medium term⁸. We believe these targets are credible because vehicle safety tests are becoming more demanding and standards introduced in Europe are often adopted elsewhere. In our view, the strong growth outlook is not reflected in its share price.

Another new holding was Keystone Law. Keystone is a platform for self-employed lawyers, providing them with compliance, IT, finance and marketing support in exchange for 25%⁹ of the revenues they generate. The number of lawyers using the platform continues to grow. The business needs relatively little capital and generates strong cashflows¹⁰, while we think its shares look cheap despite strong growth in expected profits.

We added to NIOX on share-price weakness, which was at odds with its strong full-year results. The company, which makes fractional exhaled nitric oxide (FeNo) sensors to test patients for asthma, also signed an exclusive 10-year deal with its supplier to increase manufacturing capacity¹¹.

Sales

With the war in Iran threatening a prolonged increase in energy prices, we trimmed the trust's holdings in some consumer-facing companies, including Halfords, Greggs and Secure Trust Bank. 

We trimmed the trust's holdings in RWS and Keller as their share prices strengthened. Finally, we sold Morgan Advanced Materials when its share price rose despite a profits downgrade¹². 

Outlook

UK smaller-company valuations look unusually low

There is plenty of debate about whether parts of the US stockmarket are in a bubble. One long-term measure of the S&P 500's valuation is at its highest since around 2000¹³, while SpaceX’s valuation at its public listing was about $2 trillion¹⁴, equivalent to nearly 100 times its historic annual sales¹⁵.

By contrast, UK smaller companies look cheap compared with their own history, larger UK companies and companies in the US. On one measure, their valuations are roughly a third of those in the US¹⁶. The dividend yield (income paid, expressed as a percentage of the share price) from the FTSE 250 has also moved above that of the FTSE 100 for the first time in more than 20 years¹⁷.

Developments in Iran have reduced one risk

At the start of the quarter, we believed a prolonged war between Iran and the US was the biggest threat to UK smaller companies. The outcome remains uncertain, but the likelihood of the worst-case scenario appears to have fallen. We think this should mean lower oil & gas prices, which would help UK consumers. Expectations that the Bank of England will raise interest rates are also fading; in our view, the next move is more likely to be a cut than an increase.

Political uncertainty remains, but may be less damaging than feared

Although Andy Burnham has been named prime minister, the policies of his government remain uncertain. To us it seems probable that:

• He has limited room to increase government borrowing without unsettling financial markets. UK government borrowing costs are already higher than those of other G7 countries¹⁸, so convincing investors that the public finances will be handled responsibly could lower borrowing costs and create more room for spending elsewhere.
• He will introduce policies to support economic growth. Housing is an obvious area for targeted support because it requires little government spending. There has also been renewed discussion about tax incentives for pensions and ISAs that invest in UK shares.

The UK economic outlook is improving

The outlook for the UK economy has improved, but companies that depend on consumer spending remain unpopular with investors. Halfords shows what can happen when a company in an unloved part of the market performs better, or less badly, than expected: a 10% increase in expected profits in June was followed by a 30% rise in its share price¹⁹.

Companies are buying back more shares

A record number of the fund's holdings bought back their own shares during the first half of the year. We see this as evidence that their boards are more confident about the outlook, believe they have spare cash and consider their shares to be significantly undervalued. (By reducing the number of shares in circulation, share buybacks increase the value of the shares that remain.)

There were no takeover bids for the companies in our portfolio during the first half of the year. Yet the typical company in the trust generates strong cash relative to its share price, is expected to grow profits at a double-digit rate and is forecast to have no net debt²⁰. We therefore believe more takeover approaches are likely.