Artemis Short-Duration Strategic Bond Fund
Q3 2025 update
Source for all information: Artemis as at 30 September 2025, unless otherwise stated.
Review of the quarter to 30 September 2025
The three months to 30 September saw volatility at the long end of gilt markets, but conditions for short-dated bonds were considerably more stable. July opened with sharp moves in long gilts after another policy U-turn on welfare reform, though shorter maturities remained anchored by expectations for policy rates.
A constant theme over the period was a Bank of England caught between stickier inflation and fears of a more significant slowdown in the labour market. Political noise continued to weigh on consumer and business confidence. Across G10 peers, stronger growth data led to rising yields elsewhere, but short-dated gilts were supported by the more fragile UK outlook.
August continued the steepening trend in global yield curves. Faltering growth under the weight of taxes and policy uncertainty kept the prospect of rate cuts in play, steadying the front end.
Pessimism around the UK fiscal situation seemed to reach a peak at the start of September with 30-year gilt yields peaking above 5.7% early in the month before settling back towards 5.5%. The chancellor’s Labour conference speech gave the market some comfort and gilts stabilised.
Credit spreads across the quarter remained firm, overall grinding tighter through the summer months and overcoming a small drift wider in early September. Technicals have been supportive, with lighter supply helping the market absorb political and fiscal noise. Against this backdrop, the fund’s focus on short-dated investment-grade credit has continued to deliver resilience.
Performance
Over the third quarter, the fund returned 1.8%, putting it ahead of the Markit iBoxx 1-5 year £ Collateralized & Corporates index by 0.6%. The fund continues to compare favourably with both short-dated corporate bond funds and short-duration strategic bond peers. We believe the short-dated bond space continues to offer an attractive risk/reward option in a rate-cutting cycle relative to money market funds.
| Three months | Six months | One year | Three years | Five years | |
| Artemis Short-Duration Strategic Bond Fund | 1.8% | 4.3% | 6.7% | 27.5% | 24.7% |
| Bank of England Base Rate +2.5% / Markit iBoxx 1-5 year £ Collateralised & Corporates index* | 1.2% | 3.6% | 5.8% | 21.2% | 28.4% |
Past performance is not a guide to the future.
Source: Lipper Limited, class I accumulation shares in GBP as at 30 September 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.
*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
Credit activity was steady through the period. Early in the quarter, we added Delamare Finance (a Tesco property bond) and Assura, which runs a portfolio of healthcare buildings across the UK. These positions were funded by the sale of Motability. We also made switches between Heathrow bonds.
Through August and September, new issuance was selective but we participated in London Stock Exchange 2028s, which traded well in secondaries. We also took part in DeepOcean’s high-yield issue, which offered an attractive premium in the energy services sector. The fund also added positions in Levi Strauss, the jeans and fashion brands company, and Iron Mountain, the warehousing and logistics company, both of which are high-quality BB issuers.
We established a low-cost credit default swap (CDS) trade, pairing UniCredit senior versus subordinated. We also rotated our exposure from Generali into Munich Re, seeking to provide protection in the event that risk appetite deteriorates.
Rates (government bonds)
On rates, we remained active but disciplined. In July we took profits from our positions in New Zealand real yields and US Treasury Inflation-Protected Securities (TIPS), before trimming US inflation exposure further as valuations became stretched.
We maintained our curve-steepening positions, particularly in the US 2s10s (the 10-year Treasury yield spread over the two-year Treasury yield), where policy expectations remain supportive. We reduced Canadian risk after strong data, while in the UK, we added exposure in the belly (four-year gilts) while keeping underweights in the 10-year. Duration was held at around 2.5 years, though we made a small moderation in September of the short from 0.5 to 0.25 years.
Market commentary
In the first few days of September, 30-year gilt yields peaked at 5.7%, extending the weakness observed at the end of August. However, September proved to be a much more settled month than initially expected, with yields ending the quarter at 5.5%. Except for a couple of weak days early on, government bonds traded in a range during the month. The weakness and subsequent recovery were largely focused on the long end.
The curve flattened over the month, which helps explain our fund's modest underperformance against the index in September when a small amount of profit was given back.
The Labour government had an uneventful party conference from a market perspective, which was welcomed. The chancellor’s speech said enough to not panic markets, making the point there is nothing progressive about racking up more debt. The immediate danger seems to have passed and we have a fair chance of a more stable environment in the run-up to the Autumn Budget on 26 November.
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.
