Artemis Short Duration Strategic Bond Fund
Q2 2025 update
Source for all information: Artemis as at 29 June 2025, unless otherwise stated.
Performance
The Artemis Short-Duration Strategic Bond Fund made 2.5% during the quarter, compared with 2.3% from its benchmark, the Markit iBoxx 1-5 year £ Collateralized & Corporates index (before 18 March 2024, the fund used the Bank of England base rate +2.5% as its benchmark).
| Performance (%) | 3 m | 6 m | 1 yr | 3 yrs | 5 yrs |
|---|---|---|---|---|---|
| Fund | 2.5 | 3.9 | 7.7 | 21.7 | 24.3 |
| Benchmark | 2.3 | 3.7 | 7.0 | 20.9 | 27.7 |
Past performance is not a guide to the future. Source: Lipper Limited/Artemis to 30 June 2025 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. *The target benchmark is the Markit iBoxx 1-5 year £ Collateralized & Corporates index; before 18 March 2024 it was the Bank of England base rate +2.5%.
Credit
The fund was active over the quarter. In the primary market, we bought IG Group, the RAC, Arqiva and Czechoslovak Group. We bought into some higher-beta bonds after the market weakened post-Liberation Day, including hybrids in Vattenfall, Centrica and BP and Tier 2 bonds from Legal & General, Lloyds and KBC. Other purchases included Heathrow and Greene King. We topped up Electricity North West, SSE, Logicor, Inchcape, London & Quadrant and Nationwide.
Sales included IGT, Bunzl, Volvo and BMW, all of which had performed well.
We also made a number of switches: between two bonds of Verizon, HSBC, Anglian Water, TCAP, Mercedes-Benz, Whitbread, Athene, Phoenix and Coventry Building Society. In addition, we switched between Swedbank into Schroders and Rabobank into ING.
Credit spreads recovered over the quarter after a strong sell-off on Liberation Day. The summer is traditionally a good time for credit spreads and we see no reason why this one should be any different. Although many analysts point to tight credit spreads, we are still short of peaks both year-to-date and over the past five years.
Rates (government bonds)
Rates performance was strong in April, largely through disciplined, tactical trading. While we have held a curve-steepening view, which was the biggest contributor to outperformance, we also seized on market dislocations to add cross-market strategies throughout April.
In May, rates positions acted as a slight drag on performance. Our overweight exposure in dollar bloc rates suffered on a sharp reversal led by the front end of the US curve. We held a short position in Australian rates versus US ones, which we closed following the Reserve Bank of Australia meeting mid-month. We added some UK versus European duration into the month end.
In June, US and UK rates outperformed other markets, with European rates lagging yield moves over the month. While the rates sleeve was positive, at a portfolio level our more global mix meant we were underweight UK duration versus the benchmark, which led to underperformance. The portfolio started the month with duration of 2.7 years and ended it at 2.6 years.
In terms of our inflation protection, while the fund increased US real yield exposure during the month, we ended the period with a more neutral exposure by going short EU and French inflation in June.
We retain our long US real yield exposure in anticipation of tariff-driven inflation coming through over the next few months, while reducing US nominal duration exposure. At current yield levels and looking at what’s priced into the market regarding cuts (almost three are priced into the US market by year end), it’s difficult to see many central banks matching market expectations without a more significant deterioration in economic data. The same could be said in the UK, where market expectations for cuts this year outpace previous Monetary Policy Committee guidance. In keeping with our belief that we are in a new environment where markets gyrate between hawkish and dovish extremes, we have been selling 10-year UK duration in search of better risk/reward opportunities.
Outlook
In the past month, markets have begun to price in further cuts to policy rates while economic activity shows broad resilience and fiscal policy becomes more rather than less supportive of growth. While the market always feared that a second term in the White House for Donald Trump could mean more unfunded spending, it is other governments that have turned towards greater expenditure and less fiscal discipline. In June, most countries agreed to meet the new NATO 5% spending target. In spite of this, yields have moved lower as markets focused on potential downside risks to labour markets/growth and not the ever-growing government bond supply that this new regime heralds.
Against a backdrop of more price-sensitive buyers and the almost bullet-proof nature of risk sentiment favouring equities, we feel something has to give. And while we still believe that lower policy rates will anchor bonds somewhat, longer-dated government yields should face continued upward pressure.
On the credit side, we continue to encounter a corporate sector that is cautious, focused on deleveraging and navigating policy volatility. Robust balance sheets among both corporates and households continue to underpin the seemingly confounding strength of demand. In high yield, we continue to avoid those areas that will suffer if we are wrong and macro conditions deteriorate meaningfully, notably emerging market high yield and lower-rated CCC credit.
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 Short-Duration Strategic 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.
- Higher-yielding bonds risk The fund may invest in higher-yielding bonds, which may increase the risk to capital. Investing in these types of assets (which are also known as sub-investment grade bonds) can produce a higher yield but also brings an increased risk of default, which would affect the capital value of the fund.
- 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.
- Leverage risk The fund may operate with a significant amount of leverage. Leverage occurs when the economic exposure created by the use of derivatives is greater than the amount invested. A leveraged portfolio may result in large fluctuations in its value and therefore entails a high degree of risk including the risk that losses may be substantial.
- 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.
- Counterparty risk Investments such as derivatives are made using financial contracts with third parties. Those third parties may fail to meet their obligations to the fund due to events beyond the fund's control. The fund's value could fall because of loss of monies owed by the counterparty and/or the cost of replacement financial contracts.
- Mortgage- or asset-backed securities risk Mortgage- or asset-backed securities may not receive in full the amounts owed to them by underlying borrowers.
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.
