Artemis Global Income Fund
Q2 2025 update

Review of the quarter to 30 June 2025

The Artemis Global Income Fund rose 11.7% in the quarter, compared with gains of 5.0% from its MSCI AC World benchmark and 2.8% from its IA Global Income sector average.

This takes first-half returns to +20.1%, which again is a significant degree of outperformance versus both the benchmark (up 0.6%) and the peer-group average (up 2.8%).

The second quarter was one of the most action-packed in recent memory. Global equities sold off sharply and volatility spiked to levels not seen since the pandemic in the wake of ‘Liberation Day’ and the apparent beginning of a new era of US protectionism.

However, thanks to several last-minute tariff suspensions and robust hard macroeconomic data, US equities posted a jet-propelled recovery, with the S&P 500 notching its fastest ever recouping of a 15% drawdown.

Technology companies were hit particularly hard in the sell-off, but the sector mounted a particularly brisk recovery (Nvidia fell by more than a third before finishing the quarter 67% ahead of its mid-April low).

There has been significant divergence across the sector however, with Apple more than 20% below its late-December peak and Tesla continuing to struggle thanks to the explosive deterioration in Donald Trump and Elon Musk’s relationship and increased competition from Chinese electric vehicle (EV) production.

Perhaps most significant – despite these huge moves in equities – is what H1 had in store for bond and currency markets. Clear worries about fiscal sustainability – principally in the US, but also in much of the Western world – have manifested in steepening yield curves and sharp rises in long-dated government bond yields.

The dollar had its worst first half-year in more than five decades and weakened against every other G10 currency, boosting returns for US investors in international assets. For example, the Stoxx 600 Banks sector has outperformed the NASDAQ by 47% year to date in dollar terms, versus 29% in local currency terms. 

Performance

Past performance is not a guide to the future. Source: Artemis/Lipper Limited, class I accumulation units to 30 June 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. 

Positives

Our aerospace & defence allocation (some 20% of the portfolio) was once again the most significant contributor to outperformance.

Rheinmetall beat increasingly lofty investor expectations in Q1. The company delivered record free cashflow in the period, profitability improved with 40 basis points of margin expansion and Rheinmetall’s order backlog increased by 56% year-over-year to more than €62bn. The shares have re-rated, but this has been supported by very strong earnings revisions and earnings growth.

Hanwha Aerospace also reported strong growth (revenue up 280% year-over-year), as did BAE Systems, which received £34bn in new orders in FY24 and now has a total order backlog in excess of £80bn.

Elsewhere, our power exposure was also additive to returns, helped along by a resurgent ‘AI trade’ in the latter part of the quarter and the signing of several executive orders aimed at bringing a ‘nuclear renaissance’ to the US.

Siemens Energy’s quarterly earnings comfortably beat expectations with management guiding for €4bn of free cashflow this year. The backlog now sits at €133bn, four times last year’s sales.

Mitsubishi Heavy Industries – which has the highest global market share in gas turbines for power stations, as well as holding a de-facto monopoly over the Japanese nuclear power industry (and a large defence business too) – also posted a strong quarter of performance. MHI has been one of our top contributors to returns in recent years, over which time it has transitioned from a poorly understood and lightly owned Japanese industrial to a better understood beneficiary of several areas of secular growth.

Finally, banks have once again played their part in a quarter of healthy outperformance. Commerzbank – like our other European banks – posted a strong recovery post Liberation Day and has also benefited from the dual forces of UniCredit continuing to increase its stake and good earnings momentum. We recently exited the position on valuation grounds.

South Korean bank KB rallied with Korean equities more broadly (the Kospi was the best performing equity market in the first half of the year), as falling political uncertainty in the wake of the martial law saga and growing optimism around corporate governance reforms drove the shares higher. Despite a gain of more than 65% since mid-April, the stock still trades on just 0.75x price to book.

Negatives

The most significant detractor over the quarter was our underweight to technology, with Nvidia, Microsoft and Broadcom (none of which we hold) the costliest individual names. Generally speaking, yields are low and valuations are high in the technology sector, so it is a challenging one for us to find appropriate investments in.

Purchases

We added some ‘core income’ names to the portfolio, including Hess Midstream and Plains (US pipelines with long term inflation-linked cashflows) and US shopping mall REIT Simon Property Group (SPG) which fell by almost 20% in the wake of Liberation Day. We have held SPG in the past so know the company well and would note how much the balance sheet has improved in recent years.

However, we still remain significantly underweight the ‘core income’ bucket versus our since-inception average.

Sales

In banks, we have exited some of the names that have performed well and look more fully valued (such as Commerzbank). This has been recycled into regional banks – particularly in the US and Japan – that also benefit from steeper yield curves and higher rates but by and large trade on lower valuations.

Outlook

The speed with which US equities have recovered their sharp Liberation Day losses has broken records. Risk-on sentiment has returned as a result of falling uncertainty, robust macroeconomic data and positive earnings prints from several of the multi-trillion-dollar behemoths that sit atop US indices.

Despite this rally, however, something is clearly afoot across financial markets. As above, the dollar has had its worst first half in more than 50 years, South Korea is the best performing equity market in 2025 thus far and the gold price has risen by more than a quarter.

Long-dated bonds have sold off around the world as the fiscal taps remain jammed on (Germany has abandoned the world’s strictest set of fiscal rules with the release of the ‘debt brake’ to finance a huge programme of fiscal expansion with no appreciable means by which to reduce deficits anywhere).

All of this is (yet more) evidence that we find ourselves in a new regime that is entirely different to the post-Global Financial Crisis (GFC) era. A totemic example of this was Rheinmetall (defence) replacing Kering (luxury goods) in the Euro Stoxx 50 blue-chip benchmark in early June.

In our view, uncertainty and volatility are defining characteristics of this new regime, so despite better sentiment around trade relations and economic growth, the outlook remains difficult to predict.

Yet we continue to believe that the portfolio is appropriately positioned for this very different world. We are highly contrarian versus both our benchmark and peers. We remain heavily discounted versus our benchmark, with almost double the dividend yield. These value characteristics – combined with a dividend that has grown 8% per year since the fund’s inception in 2010 – give us comfort that the fund’s strong performance has the potential to continue.