Artemis Funds (Lux) — Global High Yield Bond
Q2 2025 update

Objective

The fund is actively managed. It aims to increase the value of shareholders’ investments through a combination of income and capital growth.

Review of the quarter to 30 June 2025

April was an extremely volatile month as spreads and yields widened following Donald Trump’s imposition of tariffs on the US’s trading partners. By being nimble and moving quickly, we took advantage of the turmoil to pick up some bonds that we are confident will prove to be bargains over the next few years. We believe the market volatility is not over yet, however, and are excited about the prospect of going bargain hunting again.

Performance

Our performance for the second quarter was flat against the market (the fund made 3.1%, as did our ICE BofA Merrill Lynch Global High Yield Constrained USD Hedged Index benchmark). We underperformed slightly in April, outperformed in May and lagged a strongly rising market in June. During the dislocation of April, we added to a number of our favoured positions that had underperformed and these were meaningful positive contributors in May.

Year-to-date, the fund has underperformed slightly, delivering a total return of 4.1% against 4.4% for its benchmark. The fund’s long-term performance remains strong, with total returns over five years of 40.2%, well ahead of the index return of 30.4% and the peer group average of 28.5%.

Past performance is not a guide for the future. Source: Lipper Limited to 31 March 2025 for class I Acc USD. 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.

Positives

Our top performing bonds during the quarter were issued by Isabel Marant, the French fashion house, following a positive set of results and better-than-expected guidance for the remainder of the year.

Construction equipment company Alta Equipment Group, US healthcare consumables distributor Owens & Minor and footwear retailer Foot Locker also made significant contributions to performance. The latter's bonds rallied by some 17 points after Dick’s Sporting Goods announced plans to buy the company.

OMI's fortunes improved after its proposed acquisition of Rotech was quashed by objections from the Federal Trade Commission. The market had not liked the 100% debt-funded nature of the acquisition and OMI’s bonds had suffered earlier this year as a result. We topped up our position in OMI’s 2029 bonds at low levels in March and April on the basis that the sell-off was overdone and were subsequently rewarded when the bonds rallied following the cancellation of the acquisition.

Negatives 

We are more positive on cyclicals than on non-cyclicals at present – a view that has been a headwind to performance so far this year. We believe that cyclical businesses have been resolutely stress-tested over the past five years through intense economic volatility. Non-cyclicals, on the other hand, are very exposed to higher interest rates and bond yields and we believe many of these businesses are structurally challenged in a way that the market is failing to acknowledge.

Although cyclicals have underperformed defensives year-to-date, we believe that dynamic could unwind in the second half as investors become more comfortable with the continued health of the underlying companies to deal with further tariff-induced volatility.

In terms of individual names, US discount furnishings retailer At Home ran into issues around its pricing strategy and supply chain, which is largely based in China. These bonds have been trading at distressed levels for the past two years, but we decided to retain our position, believing At Home's challenges to be largely priced in. We also thought the bonds provided good 'option value' if any positive operational signs developed. Unfortunately, Trump’s tariff rhetoric has forced the company into bankruptcy and we are evaluating options for the position to attempt to realise the maximum value for the fund. The position today is a very small part of the overall fund, just 0.05% of the portfolio as at 30 June 2025.

Other detractors during the quarter included video game company Ubisoft Entertainment and design group Flos B&B Italia.

Fund 10-year discrete performance

Calendar year performance (%)

Past performance is not a guide to the future. Source: Lipper Limited/Artemis to 30 June 2025 for class I Acc USD. 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. Benchmark: ICE BofA Merrill Lynch Global High Yield Constrained USD Hedged Index; the benchmark is a point of reference against which the performance of the fund may be measured. Management of the fund is not restricted by this benchmark. The deviation from the benchmark may be significant and the portfolio of the fund may at times bear little or no resemblance to its benchmark.

Purchases

We used tariff-induced volatility to pick up some bargains in April, including bonds issued by chemicals companies SNF and Synthomer, lingerie brand Victoria’s Secret, fashion groups CBR and Isabel Marant, medical supply company Owens & Minor, US-based wheel producer Titan International and the oil & gas producer W&T Offshore.

We were very active again in May and June as the new issue market roared back into life, buying new issues from a diverse range of businesses: US payment-processing company Shift4; gaming company Flutter; UK specialist lender Together; data services specialist Clarivate; US event management software provider Cvent; Italian software development company TeamSystem; industrial generator producer Aggreko; UK communications infrastructure owner Arqiva; French care-home provider Clariane; Norwegian oil & gas company DNO; Spanish waste management business Urbaser; and Currenta, which owns the largest chemical production facility in Europe.

We also added some new exposure in the secondary market: US sports apparel maker Under Armour; transport operator Mobico; and some short-dated bonds in Energean, the Mediterranean oil & gas producer.

Sales 

We sold several positions early in the quarter to fund purchases elsewhere in the portfolio. Our sales included auto parts maker TI Fluid Systems, data storage solutions provider Iron Mountain, US grocery chain Albertsons, footwear brand Crocs and Domestic & General, which provides extended warranty insurance policies for domestic appliances.

Towards the end of the quarter, we sold a few positions where valuations had become too stretched to ignore, including US domestic services website Angi, desktop game maker Asmodee and North American waste disposal operator GFL Environmental.

We also sold a couple of our more cyclical positions where pricing has compressed to levels not reflecting any uncertainty, such as US agricultural and mining chemical producer LSB Industries and German Tier 1 auto supplier IHO (Schaeffler).

Outlook

Following a tumultuous April, we were glad to see risk assets recover in May and June, but there remains a high degree of uncertainty. We are cautious as to the damage done to inventory and corporate supply chains, not to mention consumer confidence, and we are keenly monitoring macro data as well as company statements.

Although we can't tell what the future holds, we do know that by investing in the bonds of solid companies with relatively low levels of duration, paying yields in the 7 to 9% range, we are structurally well set up to deal with ongoing uncertainty. After many years of suppressed yields during the era of quantitative easing, many of us may need reminding just how powerful compounding high-single-digit yields consistently over multiple years can be.