Artemis Income Fund
Q2 2026 update

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

Review of the quarter

Stockmarkets appeared indifferent to most political and economic developments during the quarter. The stop/start conflict in the Middle East, concerns about inflation and the prospect of interest rate increases, not to mention political upheaval in the UK, were largely brushed off. 

Sir Keir Starmer's resignation as prime minister and Andy Burnham's emergence as his successor raise many questions about the direction of the country. While there will be plenty of detail revealed in the coming months, it is unlikely that political developments will bring about any sea change in the fortunes of the economy and the consumer, in our view.

We would never seek to bet on a particular heads-or-tails economic or political outcome. Instead, we want to invest in a diversified range of companies that can grow their profits and market share, whatever the backdrop. 

Performance

The fund had a strong three months, returning 8.9%¹. This compares with 4.7% for the FTSE All-Share index² (the fund’s first benchmark) and 7.0% for the IA UK Equity Income sector³ (the fund’s second benchmark).

Discrete calendar-year performance 

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.

Positives 

Shares in the online trading platform IG Group hit an all-time high⁴ after a positive May trading update⁵. We believe IG Group’s relatively new management team, who have been in situ since 2024, have improved the company’s culture. This is feeding through into better performance for the business, which has grown its sales and customer numbers. 

IG announced a strategic review in March “to make sure IG maximises shareholder value”, in the words of chief executive officer Breon Corcoran⁶. This was well received by investors. 

Informa’s share price fell earlier this year due to concerns about its events in the Middle East, but it recovered significantly during June. We think Informa is under-appreciated and perhaps even misunderstood by other investors. It is the global leader in business-to-business events and has grown from 10 trade fairs 12 years ago to a portfolio of more than 800 brands⁷. Not only are its events extremely profitable, but they produce large amounts of valuable and unique first-party data. Having invested in its technology, Informa is using this data to improve customer service and generate sales leads. 

Segro, a real estate investment trust (REIT), performed strongly following an unsolicited bid from US logistics giant Prologis. Segro’s board initially rebuffed Prologis before accepting a £14bn offer in August⁸. 

EasyJet's shares rallied after the airline was approached by US private equity firm Castlelake. EasyJet rejected Castlelake’s first four proposals before agreeing in principle to a sweetened offer in early July. Apollo Global Management then entered the race on 8 July with a higher bid, which easyJet has backed⁹. Our view (for some time) has been that easyJet’s shares are materially undervalued, trading below the replacement cost of its fleet of planes, and ascribing no value to easyJet Holidays, its brand and its slots at capacity-constrained airports. We are reassured to see more widespread recognition of this through Castlelake and Apollo’s approaches.

In addition to specific shares performing well, the fund also benefited from having less exposure than its benchmark to miners and oil & gas. Both industries performed poorly.

Negatives

Imperial Brands published a weaker-than-expected trading update for the first half of its 2026 financial year¹⁰ and its shares responded. Although the tobacco sector is not without risks, we think a lot of the downside is already priced in (meaning Imperial’s shares are cheap). The company generates a lot of cash, which it is returning to shareholders through dividend¹¹ payments and share buybacks¹². 

Medical technology company Smith & Nephew also performed poorly during the quarter. We think other investors and analysts are focusing too much on its admittedly challenged orthopaedics business. Its other divisions – sports medicine and wound management – are high-quality, high profit-margin businesses that are among the market leaders. As these two divisions continue to grow, we expect them to account for an ever-larger proportion of group sales and profits.

Tesco shares declined in May, largely in response to competitive pressures. We believe the supermarket possesses the scale, balance sheet and management team to remain the market leader. Its command of technology is a particular advantage, and we think the value of its Clubcard data is significantly underestimated.

Activity

We have been building our allocation to two relatively new positions, Glanbia and Diageo, and we added Reckitt to the fund.

Reckitt’s share price had fallen sharply in reaction to conflict in the Middle East, so we were able to purchase shares at an attractive valuation and a dividend yield approaching 5%¹³. We think the consumer goods company has plenty of opportunities to improve its operations and increase its sales in emerging markets.

Glanbia is the global market leader in sports nutrition through its Optimum Nutrition brand. The core product range consists of whey-based bulk powders with a high protein content. Demand is increasing rapidly as people become more aware of the benefits of a higher protein intake¹⁴. We believe Glanbia’s growth prospects are not reflected in its share price.

Dave Lewis's appointment as chief executive of Diageo was the catalyst for us to start analysing the business more closely (we know him well from his successful tenure at Tesco). We think Diageo could be run far more efficiently. We also feel that concerns about alcohol being in structural decline, with fewer young people drinking, could be overdone.

Outlook 

The bids for Segro and easyJet are testament to how cheap and undervalued some parts of the UK stockmarket have become, in our view. There are several more companies in our portfolio that we believe could be vulnerable to an approach. Merger and acquisition activity should help to underpin share prices going forward, as bid approaches once again seem to be ticking up for UK companies.