Artemis Corporate Bond Fund
Q4 2024 update
Source for all information: Artemis as at 31 December 2024, unless otherwise stated.
During a turbulent quarter (and year) for bond markets, the Artemis Corporate Bond Fund outperformed.
In what was a difficult quarter for the UK government bond market, the fund fell by 0.1% versus a 0.4% fall in the benchmark iBoxx £ Collateralized & Corporate Index. The UK 10-year gilt yield started the quarter just below 4% but ended it at 4.6%.
Amid the turbulent market conditions seen for much 2024, meanwhile, the fund achieved a 3.1% return versus 1.7% from the index. We view that outperformance as further evidence that our active approach to exploiting the inefficiencies in the investment-grade corporate bond market continues to deliver.
| Performance (%) | 3 m | 1 yr | 3 yrs | 5 yrs |
|---|---|---|---|---|
| Artemis Corporate Bond Fund | -0.1 | 3.1 | -3.9 | 9.2 |
| iBoxx £ Collateralized & Corporate index | -0.4 | 1.7 | -9.9 | -4.2 |
| IA £ Corporate Bond | -0.4 | 2.7 | -6.1 | 0.7 |
Past performance is not a guide to future returns. Source: Lipper Limited, class I accumulation GBP to 31 December 2024. 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.
Yields on government bonds rose but credit spreads tightened
Political news dominated the quarter. Chancellor Reeves delivered her first Budget on Halloween and promptly spooked the gilt market. A combination of higher borrowing, increased spending and a lack of policies deemed likely to deliver a surge in growth stimulated a selloff in UK government bonds.
A few days later, Donald Trump's comprehensive election victory triggered an initial selloff in US government bonds due to concerns over runaway spending. However, his subsequent nomination of Wall Street veteran Scott Bessent as his Treasury secretary helped to reassure markets that there would be some limits to President Trump’s fiscal exuberance.
In the sterling corporate bond market, meanwhile, credit spreads tightened thanks to a combination of attractive all-in yields and a shortage of supply. From our perspective, however, the story of the quarter was Annington, whose bonds produced a total return in excess of 15% on the quarter after it announced it would sell its portfolio of housing for UK armed forces personnel back to the MoD for £6 billion. It will use part of the proceeds to buy back its outstanding bonds at a generous level.
Activity: A busy quarter for the fund in both primary and secondary markets
The fund was active in both the primary and secondary markets over the quarter. We added new issues from:
- Morgan Stanley;
- Iberdrola;
- Center Parcs;
- Snam SpA; and
- South West Water.
In the secondary market, we continued to seek value by switching between different bonds from the same issuer. These included Motability, Annington and CPI Property Group. Elsewhere, we switched out of Yorkshire Building Society and into Bank of America. We also made a number of switches in the insurance sector, from Royal London into Zurich and from Reckitt Benckiser into New York Life. We sold bonds from European real estate group Vonovia and reinvested the proceeds into bonds from UK leisure group Whitbread. Finally, in the water utilities sector, we switched some of our existing holdings into a new issue from Anglian Water.
Outlook
Like many people, we felt interest rates would fall further than they did in 2024. When the year began, the gilt market indicated a belief that the Bank of England would cut interest rates aggressively, lowering rates by 140 basis points over the year. In the event, however, it cut rates by just 50 basis points. Many factors contributed to that outcome: strong economic growth in the US and stickier-than-expected inflationary pressure in the UK services sector were a part of it. Equally, the new government has made a series of missteps in its first six months in power and its first budget was poorly received by the bond market.
The net result was that last year brought fewer rate cuts than either we or the market had expected despite the fact that the UK economy struggled to grow. At the time of writing, the market is pricing in UK base rates falling from 4.75% to 4.13% in 2025. We suspect that might be too cautious and that base rates of 4.75% may prove to be too high for an economy where growth is in danger of flatlining. Base rates will fall in 2025 and probably by more than a chastened market is currently pricing in. That should be supportive for gilts and, by extension, for sterling-denominated corporate bonds.
Notes and references
Classes may have charges or a hedging approach different from those in the IA sector benchmark.
Benchmarks: iBoxx £ Collateralized & Corporates Index; A widely-used indicator of the performance of sterling-denominated corporate investment grade bonds, in which the fund invests. IA £ Corporate Bond NR; A group of asset managers’ funds that invest in similar asset types to the fund, collated by the Investment Association. These act as ‘comparator benchmarks’ against which the fund’s performance can be compared. Management of the fund is not restricted by these benchmarks.
FOR PROFESSIONAL INVESTORS AND/OR QUALIFIED INVESTORS AND/OR FINANCIAL INTERMEDIARIES ONLY. NOT FOR USE WITH OR BY PRIVATE INVESTORS.
CAPITAL AT RISK. All financial investments involve taking risk and the value of your investment may go down as well as up. This means your investment is not guaranteed and you may not get back as much as you put in. Any income from the investment is also likely to vary and cannot be guaranteed.
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.
Risks specific to Artemis Corporate Bond 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.
- Bond liquidity risk The fund holds bonds which could prove difficult to sell. As a result, the fund may have to lower the selling price, sell other investments or forego more appealing investment opportunities.
- Credit risk Investments in bonds are affected by interest rates, inflation and credit ratings. It is possible that bond issuers will not pay interest or return the capital. All of these events can reduce the value of bonds held by the fund.
- Derivatives risk The fund may invest in derivatives with the aim of profiting from falling (‘shorting’) as well as rising prices. Should the asset’s value vary in an unexpected way, the fund value could reduce.
- Charges from capital risk Where charges are taken wholly or partly out of a fund's capital, distributable income may be increased at the expense of capital, which may constrain or erode capital growth.
- Emerging markets risk Compared to more established economies, investments in emerging markets may be subject to greater volatility due to differences in generally accepted accounting principles, less governed standards or from economic or political instability. Under certain market conditions assets may be difficult to sell.
- Income risk The payment of income and its level is not guaranteed.
Important information
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.
