Artemis Strategic Assets Fund
July 2025 update

Review of the month to 31 July 2025

Risk assets received some welcome relief as the original expiry date of US tariffs was pushed out from 9 July to 1 August. This allowed US President Donald Trump to announce a series of deals with trading partners, such as Japan, the EU and South Korea, with tariff rates of 15%, while applying higher rates to some Asian countries. Those that did not manage to agree a deal were generally hit with higher but varying rates.

Chair of the Federal Reserve Jerome Powell came under sustained pressure from Trump to cut rates to support the economy. There were even reports the president had raised the possibility of firing Powell, but he subsequently retreated from the immediate threat.

June inflation data showed tariffs led to an increase in the price of goods, leading US bond yields to rise during the first half of July, aided by solid labour market data. Economic activity remained robust, which was further evidenced by Q2 GDP coming in at an annualised rate of 3.0% compared with the 2.6% expected.

President of the ECB Christine Lagarde affirmed the bank's hawkish stance in July. Having reduced rates in Q2, they are firmly on hold, and Lagarde sees the 2% deposit rate reached in June as the likely end of the easing cycle.

Higher planned fiscal spending weighed on German bonds in July, while in the UK a failure to reduce the welfare bill prompted gilt yields to spike. More generally, investors are questioning the fiscal sustainability of western governments.

Overall, the Artemis Strategic Assets Fund made 0.6% in July 2025 compared with 0.3% from its CPI+3% benchmark and 3.5% from its IA Flexible Investment sector.

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

Positives/negatives

Artemis Strategic Assets contains two ‘buckets’: a Directional (Trends) Strategy that aims to take advantage of market trends; and a Non-Directional Strategy, which endeavours to generate returns that are uncorrelated to market movements by taking long and short positions whose exposures offset each other. For both strategies, the fund invests in financial derivatives that provide exposure to a diversified range of asset classes, including equities, bonds and currencies.

The fund benefited from an increasing long position in equity markets during the month, as the Directional element of the portfolio added to stocks. However, directional trends in currencies and rates (government bonds) were less supportive. The longs in Australian rates were wrong-footed when the Reserve Bank of Australia decided to hold rates where they were, while in currencies, our long positions in the euro came under pressure.

Within the Non-Directional Strategy, currencies benefited from longs in the Czech koruna and US dollar during the month, while rates added value through shorts in US, Japanese and European government bonds.

Since the change in manager, the fund has shown a low correlation to equities, bonds and commodities, while delivering a high correlation to the cross-asset trend peer group index (BTOP50) that we are trying to capture.

Portfolio activity

Directional (Trends) Strategy

• Equities: We continued to increase exposure to equities in July as stocks appreciated; this rose to 32.5% of the portfolio by month end. Our preference was for long positions in emerging Asian equity markets which benefited from a cooling in the trade war, and US utilities, an indirect beneficiary of technology spend on data centres.
• Bonds: We reduced duration from 3.7 years long at the end of June to essentially neutral by the end of July. While our preference to be relatively long Swiss rates remained, elsewhere longs in shorter-dated maturities broadly offset shorts in longer maturities where debt sustainability fears affected the cost of long-term borrowing.
• Long FTSE China and Hang Seng: The resumption of tariff negotiations between China and the US has supported emerging Asia. Moreover, there are signs the Chinese economy may be stabilising.
• SPI200 long: After a surprise lack of movement in Australian rates during the month, weaker data paved the way for expectations to be lowered, which boosted the equity market. Australia has also benefited from a thawing in trade relations between China and the US.

Non-Directional Strategy

• Short Canadian dollar: Outflows in this currency and relatively long positioning were the key reasons for our short.
• Long Japanese yen: Valuations are relatively cheap for the yen, while positioning is underweight.
• Long New Zealand dollar: We observed strong relative inflows later in July, while positioning remains underweight and the valuation looks cheap.

Outlook

Agreed tariffs broadly lower than anticipated

The expiry of the extended deadline for reciprocal tariffs has resulted in lower levels than those initially announced. Nevertheless, even the lowest tariffs of 10% are still the highest seen for many years and will act as barriers to trade.

US labour market data revised down, inflation rising

The uncertainty surrounding the tariff announcements, deadlines and potential trade deals is beginning to be reflected in the economic data. Firstly, the labour market appears to have been much softer than originally thought over the last two months as historical data was substantially revised down. Secondly, inflation has continued to surprise on the upside within goods prices and the Federal Reserve's preferred measure of core personal consumption expenditures (PCE). Sentiment on prices has also crept up in the services sector, according to one recent survey.

Fed turns dovish, increased likelihood of rate cuts

We are in the early phase of absorbing a wholesale change in relationships between the US and its trading partners. With prices already creeping higher and uncertainty causing payroll growth to stall, the Federal Reserve has a fine line to tread in setting interest rates. While holding rates steady may seem like the most sensible outcome, the constant public pressure that Trump is putting on the Federal Reserve – and the prospect of a new, more dovish chairperson being announced in advance of taking up the position next year – has led to a more dovish tilt in the committee. Two members recently voted to reduce interest rates at the most recent meeting on 30 July and markets are now pricing in more than two cuts of 0.25% by the end of the year. The prospect of a September cut, therefore, seems more likely, unless inflation suddenly takes off.

Europe to continue cutting rates

Sentiment in Europe has been buoyed by Germany loosening its balanced budget rules and opening the door to significantly higher spending on infrastructure and defence. This was further boosted by the commitment to increase defence and security spending to 5% of GDP by all NATO country members by 2035. The region has successfully negotiated a relatively low tariff rate of 15% and although the spending commitments by Europe into the US remain less clear, this should support growth. While the ECB may hope the current rate of 2% represents the bottom of the cycle, a meaningful slowdown in US activity will also affect Europe and cause it to loosen monetary policy.