Artemis SmartGARP Global Equity Fund
Q3 2024 update

• Over the quarter the fund returned -3.3% in sterling terms vs the MSCI AC World index's return of 0.5%.
• Year to date the fund has returned 13.7% vs the index's 12.8%, resulting in top quartile performance despite significant underweight to the US and to the so-called Magnificent 7. 
• Value bias in the fund remains substantial, 47% discount to MSCI ACWI…
• …with market level quality and growth characteristics

Source: Artemis, Bloomberg, MSCI as at 30 September 2024. ROE is a blend of 3-year trailing and 2-year forward.

Performance – muted returns mask summer months packed with volatility and policy moves

Global equities ended the quarter up 0.5%, taking year to date performance to 12.8% (in sterling terms). There was considerable volatility over the three months. In July, earnings weakness in some of the index’s largest constituents cast doubt on the sustainability of their share prices. This was accompanied by weaker economic data which reignited fears of a recession, and the unwind of the Yen carry trade (whereby investors had borrowed in Japanese Yen to invest in higher-yielding assets) as the Bank of Japan raised interest rates by 25bps. The unwind, coupled with global growth fears, led to the Japanese TOPIX index  shedding almost 13% in a single day in August.

Markets recovered remarkably quickly from this turmoil, with the Federal Reserve going on to deliver a 50bp rate cut. Outside of the US, China announced significant stimulus targeting both the supply and demand side of the equation – the latter having been the key component that the market had been looking for. This prompted a rally in Chinese equities as international investors were drawn back to the region. 

Past performance is not a guide to the future. Source: Lipper Limited as at 30 September 2024 for class I accumulation 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. 

Attribution

The fund underperformed the index returning -3.3% vs the index's 0.5%. By country, our largest detractors were in China and the US. The former were energy holdings such as PetroChina, CGN Power, and CNOOC, which were dragged down by declining oil prices. Our US exposure also proved to be a headwind to fund performance. Dell and Qualcomm, two semiconductor-related companies, underperformed due to broader concerns around the sustainability of AI expenditure.

On the positive side, a broad range of companies partially offset some of the weakness in other areas. Comfort Systems (US, industrials), United Lands (Hong Kong, pharmaceuticals), Unum (US, insurance), and Tenet Healthcare (US, healthcare) all helped performance.

Activity – China recovery, energy into healthcare

Additions:

• Healthcare: HCA Healthcare, Tenet, Teva
• China recovery: Alibaba, Geely

Sales:

• Oil & Gas: Repsol, Total, Exxon
• Deteriorating fundamentals: Associated British Foods, Merck

Deeply discounted with attractive growth and quality metrics

The minor changes we made over the quarter leave the fund's high-level characteristics unchanged. It has a significant valuation discount to the market while maintaining attractive growth and income characteristics. At a regional level, little has changed. We remain heavily overweight to emerging markets and Europe, with a substantial underweight in the US (47% of the fund vs 67% Index). At a sector level we remain overweight in banks, food & beverages, and insurance. Our main underweights are to technology, financial services, and industrial goods.

We have slightly reduced our exposure to the energy sector and increased our exposure to healthcare. In part this is because there are near-term headwinds to the oil price, but also because there are attractive healthcare companies in the US that are seeing upwards revisions to profit forecasts.

We believe the fund to be not only a core global equity holding, but also an attractive addition to portfolios as a diversifier away from some of more growth-oriented areas of the market that investors remain concentrated in.

Our focus on fundamentals continues

We continue to focus on the fundamental performance of businesses and where that performance is not yet fully reflected in the share price. As we move through these volatile periods, distortions occur in equity markets caused by short termism. A strategy that has a longer-term time horizon, and one that is designed to profit from these biases should stand the test of time.

A word on China

Within the fund we have been overweight the country for some time, simply because it is home to a plethora of businesses displaying attractive fundamentals and trading at deeply discounted valuations. This has required a good deal of patience, but we feel the recent policy announcements by the government should reward us over the coming months for having conviction in our process.