Artemis UK Special Situations Fund
Q2 2026 update

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

Overview

Two themes dominated stockmarkets in the second quarter: the conflict in Iran and political change in the UK.

Although the US and Iran agreed a conditional ceasefire in early April, oil prices stayed high at first. China cut its imports and many countries drew down oil inventories, so fears of excessive energy prices did not materialise. In mid-June, an agreement allowed ships to pass through the Strait of Hormuz again and oil prices fell sharply towards pre-war levels.

Sir Keir Starmer resigned as prime minister in June after growing unrest within the Labour Party. However, Andy Burnham's commitment to the existing fiscal (taxing and spending) rules and his appointment of well-regarded economic advisers appeared to reassure investors. 

Performance

Over the quarter, the fund rose by 11.0%. Its first benchmark, the FTSE All-Share index¹ (a broad measure of the UK stockmarket), gained 4.7%. Its second benchmark, the IA UK All Companies sector average² (a group of similar UK funds), gained 7.2%.

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.

Contributors

IG Group's revenue growth accelerated as it attracted more new customers. The number of customers making their first trades, a strong indicator of future activity, rose by 63% in the year to 31 March 2026³. Management subsequently raised profit forecasts.

Watches of Switzerland reported a 24% increase in US revenues⁴. Demand for luxury watches remained strong, while the Roberto Coin jewellery brand continued to gain traction. Management raised forecasts for 2027 ahead of market expectations.

Johnson Service Group reported good results. In May, the board announced a £55m share buyback⁴, equal to 10% of the company's market value⁵, alongside a positive trading update. The shares rose strongly.

Detractors

A small number of companies continued to drive the UK market. HSBC and Rolls-Royce alone produced almost 40% of the index's return in the first half of the year⁷, but we hold neither company. Their valuations do not meet our criteria.

Babcock reported good full-year results⁸, but investors focused on an additional provision for the Type 31 frigate contract. Delays to the UK's Defence Investment Plan also weighed on the shares. The plan's publication at the end of June supported Babcock's Ministry of Defence programmes and medium-term targets, while the underlying business continued to deliver upgrades and strong cash generation.

Weaker demand from North American air passengers hurt WH Smith in April and May. The company raised £106m to strengthen its finances⁹ and we supported the fundraising. Management continues to focus on travel essentials in the UK and US and to exit unprofitable contracts elsewhere.

UK housebuilders continued to face higher construction costs and slower sales. Crest Nicholson also experienced delays to expected land sales¹⁰. The company will need to negotiate with its lenders, but we expect a practical outcome.

Purchases

We added two new holdings in the quarter: Rightmove and Convatec.

Rightmove is a website for estate agent property listings. Buyers value its broad range of listings, while sellers want access to its large audience. These advantages give the company strong control over the prices it charges customers.

Rightmove's new management team has increased investment to strengthen its lead and respond to the growth of AI (artificial intelligence) tools¹¹. This spending will reduce profits in the short term, but we believe the core UK business will remain resilient. We believe new areas of growth should help profit margins recover.

Convatec makes medical products and technologies. The company struggled after it joined the stockmarket in 2016, partly because earlier owners had underinvested in manufacturing and product development¹². A new management team began a turnaround in 2019 and has since improved manufacturing, increased research spending and rebuilt the product pipeline. Revenue growth has stabilised and management now targets faster growth and higher profit margins¹³.

We also increased our holding in Babcock. We had taken profits after the shares rose strongly in 2025, then started rebuilding the position when they fell in early 2026. We added to Unilever and Entain as well.

Disposals

We made no full disposals, but we took profits in several strong performers. Our largest sale was Oxford Instruments, which we have held since 2018. We added to the position when tariff concerns caused the shares to fall a year ago. The shares recovered strongly in 2026 and reached the level of a previous bid from Spectris¹⁴, so we reduced our holding.

Outlook

The portfolio recovered strongly after a difficult first quarter. Our companies continue to perform well, while we believe valuations remain attractive. We have a strong pipeline of new ideas, which gives us confidence in the outlook.