Artemis US Smaller Companies Fund
Q2 2026 update
Source for all information: Artemis as at 29 June 2026, unless otherwise stated.
This is a marketing communication. Before making any final investment decisions, and to understand the investment risks involved, refer to the fund prospectus (or in the case of investment trusts, Investor Disclosure Document and Articles of Association), available in English, and KIID/KID, available in English and in your local language depending on local country registration, available in the literature library.
The fund’s objective is to grow capital over a five-year period.
Note to investors
On 12 January 2026, the market capitalisation restriction limits for the Artemis US Smaller Companies Fund and Artemis Funds (Lux) – US Smaller Companies were amended. The funds now commit to principally invest in shares of smaller companies which, when first acquired, have a market value of less than $20bn, previously $10bn.
Market review
US smaller companies rose strongly during the second quarter. In April, investors appeared to worry that the conflict in the Middle East would keep energy prices high. An interim agreement between the US and Iran eased those fears by the end of June. Brent crude then recorded its largest quarterly fall since the pandemic1, which reduced concerns about inflation and led investors to focus on the strength of the US economy and company profits.
Strong employment data supported confidence in the domestic economy, while analysts raised profit forecasts for a wide range of companies. The Russell 2000 index continued to outperform the S&P 5002. Technology companies benefited from continued spending on artificial intelligence (AI) infrastructure, while industrial companies gained from improving confidence in the economy.
The US Federal Reserve signalled that interest rates could remain higher for longer because the economy looked firm. Even so, falling oil prices eased inflation concerns and supported share prices towards the end of the quarter.
Performance
The fund returned 26.9% during the quarter, ahead of the 20.7% return from its first benchmark, the Russell 2000 index3 and 23.8% from its second benchmark, the IA North America Smaller Companies average4.
| 2025 | 2024 | 2023 | 2022 | 2021 | |
|---|---|---|---|---|---|
| Artemis US Smaller Companies | 4.6% | 25.0% | 12.7% | -19.4% | 17.7% |
| Russell 2000 NTR (WHT 15%) GBP* | 4.8% | 13.5% | 10.3% | -10.4% | 15.9% |
| IA North American Smaller Companies2 | 0.3% | 13.3% | 10.9% | -12.5% | 17.4% |
Past performance is not a guide to the future.
Source: Lipper Limited I Acc GBP to 31 December 2025. 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.
*As at 31 Oct 24 the benchmark changed to Russell 2000 NTR (WHT 15%) GBP. Returns up to 31 Oct 24 reflect those of the Russell 2000 TR.
Positives
Companies that supply products and services for AI data centres performed well:
- Seagate (data storage) and Coherent (data-centre networking) benefited from strong demand for their products and services, and limited supply.
- Applied Optoelectronics rose after it announced plans to increase production of lasers for very large data centres5. We took profits via a complete sale.
- MKS, which supplies equipment used to make semiconductors, was another beneficiary of AI infrastructure demand.
- Bloom Energy rose on the growing demand for power. We think it can continue on its upwards trajectory: it delivers fuel cells to data centres much faster than traditional energy-equipment suppliers. One particular highlight during the quarter was the news that Brookfield Asset Management increased the size of its infrastructure partnership with Bloom from $5bn to $25bn6.
Negatives
The following holdings held back returns:
- CenterPoint Energy, a Texas utility, announced its intention to sell up to $1bn of new shares7, which weighed on its valuation. However, the underlying business performed better than the wider utility sector.
- Globus Medical, which develops products for spinal procedures, reported strong profit margins8. However, a wider sell-off in the medical-technology sector pulled its share price down.
- Primoris Services, which provides skilled workers to the energy sector, reported profits that were well below expectations9. We sold the holding, after which its shares fell further.
- Hasbro, the toy and games company, suffered along with many other consumer names as higher oil prices affected sentiment. We expect this cloud to lift as tensions in the Middle East ease and US consumers receive tax refunds.
Activity
We reduced our holding in Coherent (networking for data centres) and sold out of Applied Optoelectronics (fibre optic networking) following strong gains, recycling capital into new positions.
These include Twilio, a cloud communications platform, which we think can benefit from AI; and Onto Innovation, which provides tools and software that semiconductor manufacturers use to control and measure production.
Axon Enterprise has suffered from investors' concerns that AI could disrupt its software services. We disagree. Axon has a distinctive position as a technology partner to police departments and has built a substantial AI platform. After reducing the holding in the previous quarter, we started to increase it again.
Compared with the Russell 2000, the fund has more exposure to industrials, utilities and technology. Since the first quarter of the year, we have increased exposure to basic materials (such as natural resources) and reduced exposure to consumer staples (essentials such as food, beverages and cleaning products).
Outlook
Investors now appear to be focusing less on the Middle East and more on the strength of the US economy and the path of interest rates. While higher bond yields10 may continue to create periods of volatility, the (albeit fragile) ceasefire in the Middle East has seen these retreat and oil move sharply lower. Recent economic data have remained resilient, while analysts have raised profit forecasts across a wider range of companies.
US manufacturing continued to grow through June after nearly three years of contraction11. We believe this creates a supportive environment for many small and medium-sized companies.
Large technology and AI companies continue to invest heavily in data centres and related infrastructure. We therefore see opportunities in businesses that supply the hardware, software and services behind this expansion. However, AI does not drive every decision. We assess each company on its own merits and look for high-quality businesses with distinctive long-term (periods of at least five years) growth prospects across a wide range of sectors.
Notes and references
2. Lipper Limited, GBP, total return
3. Russell 2000 NR (net of 15% withholding tax) index is a widely used indicator of the performance of US smaller companies, which the fund invests in. It acts as a ‘comparator benchmark’ against which the fund’s performance can be compared. Management of the fund is not restricted by this benchmark
4. IA North American Smaller Companies NR. A group of other asset managers’ funds that invest in similar asset types as this fund, collated by the Investment Association. It acts as a ‘comparator benchmark’ against which the fund’s performance can be compared. Management of the fund is not restricted by this benchmark.
9. https://ir.prim.com/news-and-events/news-releases/2026/06-22-2026-210520328
10. The income paid by a bond, expressed as a percentage of its price. Bond yields have an inverse relationship with prices.
Risks specific to Artemis US Smaller Companies Fund
- Market volatility risk The value of the fund and any income from it can fall or rise because of movements in stockmarkets, currencies and interest rates, each of which can move irrationally and be affected unpredictably by diverse factors, including political and economic events.
- Currency risk The fund’s assets may be priced in currencies other than the fund base currency. Changes in currency exchange rates can therefore affect the fund's value.
- Smaller companies risk Investing in small companies can involve more risk than investing in larger, more established companies. Shares in smaller companies may not be as easy to sell, which can cause difficulty in valuing those shares.
The intention of Artemis’ ‘investment insights’ articles is to present objective news, information, data and guidance on finance topics drawn from a diverse collection of sources. Content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security or investment by Artemis or any third-party. Potential investors should consider the need for independent financial advice. Any research or analysis has been procured by Artemis for its own use and may be acted on in that connection. The contents of articles are based on sources of information believed to be reliable; however, save to the extent required by applicable law or regulations, no guarantee, warranty or representation is given as to its accuracy or completeness. Any forward-looking statements are based on Artemis’ current opinions, expectations and projections. Articles are provided to you only incidentally, and any opinions expressed are subject to change without notice. The source for all data is Artemis, unless stated otherwise. The value of an investment, and any income from it, can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested.
