Artemis UK Special Situations Fund
Q4 2025 update

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Review of the quarter to 31 December 2025

The final quarter of 2025 was dominated by the Budget. A 12-week lead-up, with a steady flow of leaks and speculation, was unhelpful and the prolonged uncertainty weighed on confidence for both consumers and businesses alike. Despite that uncertainty, the UK stock market continued to make progress. The FTSE 100 rose by 6.9% and the FTSE 250 climbed 2.9% to produce a total return for the FTSE All-Share of 6.4%. The fund gained 4.0% over the quarter. 

Past performance is not a guide to the future. Source: Lipper Limited to 31 December 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.

Detractors

Two casualties of the Budget hurt performance in the quarter, one more expected than the other. We took profits in Entain back in July in anticipation of further tax rises on the gambling industry, although the eventual outcome was a touch worse than we had expected. Retail shops (and the associated jobs) were spared but online gaming duty rose from 21% to 40%.   

Whitbread as a casualty was more surprising. As widely covered in the press, business-rate reform was expected to target large online retailers rather than a hospitality industry still reeling from the impact of last year’s Budget. That consultation process remains under way but, in the meantime, the draft rateable value of Whitbread’s hotels has risen materially. The basis of the valuation is opaque and may be challenged on a case-by-case basis but, in the absence of any changes, there has been significant and permanent value transfer from Whitbread’s shareholders to the UK government.   

B&M issued a substantial cut to its earnings expectations. A new chief executive, Tjeerd Jegen, has begun a turnaround focused on improving like-for-like sales. His plan is wide ranging and includes reducing prices, improving availability and increasing the cadence of seasonal offers. As he acknowledges, the turnaround will take time, but there are significant opportunities both near and longer term. 

Contributors

Standard Chartered and Barclays, two of our largest holdings, continue to perform well. Both reported profits ahead of expectations and upgraded full-year guidance at their Q3 results. Medium-term targets look set to be upgraded further with full-year results in February. 

Fears that IG Group would be a Budget casualty were misguided, with spread betting avoiding higher taxes. Initiatives under new chief executive Breon Corcoran are showing signs of success. The latest trading update reported new customers up 64% on the prior year and 18% on the previous quarter, supported by new products and increased marketing investment and effectiveness. 

Watches of Switzerland rebounded as the 39% tariff rate applied to Swiss goods was lowered to 15%. Trading was also robust, with US demand remaining strong despite price rises.   

Activity

We added one new holding in the quarter: YouGov, a global research and data-analysis company best known for its public opinion polls. YouGov’s key differentiator is its large and long-running proprietary online consumer panel. This allows it to conduct surveys and interviews quickly, consistently and with high fidelity, providing insight into consumer attitudes and behaviours. It then sells this data to advertisers and global brands.  

YouGov has many of the attributes of a highly rated company including high return on capital and recurring revenue, global reach and a proprietary data resource. However, its shares have underperformed due to a recent slowdown in growth. The solution, we believe, is artificial intelligence (AI). YouGov is excellent at detailing what consumers think, but less useful at allowing customers to understand why. Large language models (LLMs – AI systems that can understand and generate human language) allow YouGov to run AI-led conversations with consumers to gather detailed insight at scale. YouGov and its customers can then use AI to interrogate this very rich dataset. 

After beginning to reduce our Jet2 holding in May, we fully exited the position in December. We made our initial investment in May 2020 when its planes were grounded and the UK borders shut and since then it has acted as the perfect case study of why we integrate stewardship into our investment strategy. During Covid, Jet2 refunded customers quickly, paid hotel suppliers on time and topped up the wages of furloughed staff. This focus on all stakeholders is reflected in customer surveys, with Jet2 consistently voted best airline and tour operator. The strong recovery and market share gains in recent years are, in our view, a direct result of those actions taken.      

We also sold our position in FirstGroup as it is hard to think of a company less compatible with a Labour government’s ideology than the bus and rail operator. Since we invested in July 2021, management have done a good job in acquiring smaller bus operators and rebuilding margins in this division, while expanding the open-access rail operations. The strong balance sheet has also allowed regular share buybacks such that the share count has more than halved in the past four years. The shares performed well as a result. That said, the Labour government’s policies of rail nationalisation and bus franchising remain significant headwinds, as does the Department for Transport’s vocal objections to further rail open-access agreements.   

Outlook

Despite the gloomy headlines, the UK market performed strongly in 2025, with the FTSE All-Share rising by 24.0%. This was led by the larger, internationally focused companies within the FTSE 100. Domestic stocks remain out of favour. 

Our philosophy and investment process focus on the recovery potential of unloved stocks and we have increased our allocation in the UK mid-cap sector due to selective attractive opportunities. We continue to invest with discipline in this area of the market as we recycle gains from successful investments made a few years ago. This gives us confidence in the potential for further gains in the year ahead.