Artemis Strategic Assets Fund
Q3 2025 update

Review of the quarter to 30 September 2025

Tariff deadline prompts flurry of trade deals and market recovery

Risk assets received some welcome relief as the original expiry date of the delayed retaliatory US tariffs was pushed out from 9 July to 1 August. On reaching the expiry date, risk assets initially sold off, but a swift recovery followed. The S&P 500 soon hit fresh highs as the market was calmed by the US having already reached trade deals with several large economies such as the EU and Japan.

Federal Reserve cuts rates

Chair of the Federal Reserve Jerome Powell came under sustained pressure from President Donald Trump to cut interest rates to support the economy. This pressure had diminished by September as the central bank reduced rates due to a softening in the labour market and indicated it would do so twice more before the end of 2025. This reduction in borrowing costs supported financial markets.

Europe reaches end of cutting cycle – for now

President of the European Central Bank Christine Lagarde affirmed the organisation's hawkish stance in July, leaving interest rates unchanged over the current quarter against a stagnant economic backdrop. Industrial sector weakness, notably in the auto sector, and a relatively lacklustre economy were expected to be offset by a large increase in planned fiscal spending led by Germany. Simultaneously, debt sustainability issues began to affect European sovereign bonds, notably in France where the government collapsed after it was unable to agree a curtailment in government spending.

Gold offers shelter to investors

Attacks on the independence of the Federal Reserve, concerns that rates are being cut while inflation is still relatively elevated and debt sustainability fears spreading across the globe led to strong demand for gold.

Source: FactSet

Performance

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 continued its recovery which began in June. The Directional (Trends) Strategy appreciated during the quarter, driven largely by long positions in equity markets, with the positive backdrop for risk assets providing support. Selected currency positions also added value, including the long in Mexican pesos versus the dollar and the short in Japanese yen versus the euro.

The Non-Directional Strategy also performed well, benefiting from currency longs in the Czech koruna and Australian and US dollars. Our longs in US and Canadian equities also did well, more than offsetting the short in emerging markets. However, the rates (government bonds) side marginally hindered returns due to relative shorts in Canada against the backdrop of a weak economy. 

Overall, the fund returned 4.0% during the quarter, ahead of the 1.1% from its CPI + 3% benchmark but behind the 6.5% made by its IA Flexible Investment sector. 

Past performance is not a guide to the future. Source: Lipper Limited to 30 September 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.

Activity

Directional (Trends) Strategy

• Equities: We increased our exposure to equities during the quarter as momentum strengthened in a relatively low volatility environment. The portfolio retained a preference for long positions in emerging Asian equity markets that were beneficiaries of expected fiscal support from China's government. We also like US utilities – an indirect beneficiary of technology spend on data centres.
• Bonds: Weak economic data in Switzerland and New Zealand were largely responsible for the increase in our bond duration during September. Having been pared back to flat by early August, we again increased duration by the end of the period, to 4.8 years. For much of the quarter, longs in shorter maturities were broadly offset by shorts in longer tenors where debt sustainability fears affected the cost of long-term borrowing.
• Long FTSE China & Hang Seng: The expectation of fiscal and monetary stimulus from Chinese authorities and an easing in the tariff war with the US supported the emerging Asia region.
• Long SPI200: Australia was also an indirect beneficiary of a thawing in US-China trade relations.

Non-Directional Strategy

• Short GBP/long AUD: Positioning in the Australian dollar looks low and the economy is, on balance, improving slightly.
• Long GBP/short CAD: Outflows and relatively low yields versus other currencies kept us negative on the Canadian dollar. 
• Short GBP/long JPY: Inflows into the Japanese yen combined with relatively strong economic growth and short positioning led us to go long. 

Total portfolio risk contribution

Source: Artemis

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

Outlook

Debt sustainability questions growing

Questions continue to be raised over the ability of governments to service the debt piles they have accrued in the last few decades. The UK finds itself in an impasse, the chancellor having committed to certain fiscal rules that, coupled with weak productivity and growth forecasts, will require further tax rises in the Budget later this year. In France too, the government has collapsed twice this year, originally under Prime Minister François Bayrou, then more recently under Sébastien Lecornu who headed up the caretaker government. In both cases there was a failure to agree the necessary reduction in fiscal spending to bring long-term debt levels under control. Governments will need to make some unpalatable decisions in the coming years on where best to reduce fiscal spending that has become more expensive to finance now that inflation and interest rates have normalised.

Federal Reserve dual mandate focusing on employment

Now that the US has agreed trade deals with some of its major trading partners, much of the uncertainty surrounding tariff announcements appears over. However, one surprise still awaits markets in the form of the Supreme Court ruling on the legality of the tariffs which is due to begin in November. Regardless, in delivering the most recent reduction in interest rates, Chair of the Federal Reserve Jerome Powell leaned more on labour market weakness as justification for easing monetary policy, implicitly showing less concern with inflation, the other part of his dual mandate.

At the time of writing, the US government is 'shut down' as Democrats and Republicans cannot agree on future public spending plans, with the sticking points focused around healthcare insurance and related tax-credit extensions. Given historical experiences, this is likely to be resolved relatively soon. However, this will only make the Federal Reserve's decision whether to reduce interest rates by a further 50bps by year-end (as implied in its most recent 'dotplot') even more difficult, as many significant data releases on the US economy are presently unavailable. More recent private sector activity indicators point to a stable US economy, although prices remain elevated, which will inevitably slow the pace at which monetary policy easing can be used to stimulate the economy.

Unclear if further rate cuts in Europe are required

Sentiment in Europe has been buoyed by the commitment of all NATO country members to increase defence and security spending to 5% of GDP by 2035. In addition, the region has successfully negotiated a relatively low tariff rate of 15%. While the European Central Bank may want the current rate of 2% to represent the bottom of the rate cycle, a meaningful slowdown in US activity will also affect Europe and could cause policy to be eased once more. Cracks are already appearing in the European automotive sector, with competition in electric vehicles at home and in China causing earnings downgrades and a contraction in industrial activity.