Artemis Funds (Lux) – UK Select
Q4 2025 update

Objective 

The fund is actively managed. Its aim is to increase the value of shareholders’ investments primarily through capital growth.

Review of the quarter to 31 December 2025 

Despite the best efforts of the government, 2025 proved to be a good year for UK equities, both in absolute terms and relative to the performance of global indices. A weaker dollar combined with a desire from investors to diversify their exposure away from the Magnificent Seven provided a backdrop for other markets to re-rate. Strong earnings momentum from many of the FTSE’s largest companies and a low absolute starting valuation allowed the UK to fully participate in the trend. At an index level, the two notable themes were the ongoing rotation from growth to value as well as the concentration of returns from the 10 largest stocks. 

Our strategy's focus on free cashflow allowed it to benefit from the growth-to-value rotation, while our overweight positions in financials and aerospace-related holdings and underweights in staples and AI ‘winners’ enabled it to outperform in a very narrow market.

Artemis Funds (Lux) UK Select made 5.1% during the three-month period, compared with 6.4% from its FTSE All-Share benchmark and 2.5% from its UK Flex-Cap Equity sector average. 

Past performance is not a guide to the future. Source: Artemis/Lipper Limited, class I accumulation GBP to 31 December 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. Returns may vary as a result of currency fluctuations if the investor’s currency is different to that of the class.

Detractors 

3i reacted negatively to weaker like-for-like trading at Action in October and early November. This was driven entirely by the French stores (which account for just under one-third of sales), due to a combination of weak consumer sentiment (political uncertainty), unseasonably warm weather and greater discounting from one of its peers which has collapsed into administration. The other two-thirds of the business continues to trade well. Having halved our position over the past 18 months on valuation concerns, we have reversed direction and added to our holding as we believe the compelling store economics and significant long-term roll-out potential remain unchanged.  

Marks & Spencer had a volatile year as investors proved reluctant to look past the cyberattack. We added to our holding throughout 2025 and remain enthused that the shares will catch up much of the relative ground they lost. 

Our holdings in bookmakers Flutter and Evoke were hit by higher-than-expected tax rises in the Budget. On the back of this we expect the UK market to shrink and consolidate, allowing the larger operators to gain market share gains, but ultimately it is a negative for the industry profit pool.

Whitbread was another Budget loser as a substantial change in rateable values of its UK hotel portfolio will see its business rates bill double from its current level of about £150m per annum over the next three years. This is a material headwind on a business that makes about £600m of operating profit per annum. The rateable values can be appealed when they kick in in April and we expect Whitbread and the rest of the hotel industry to push back, leading to a much smaller increase in the total bill. Until there is more clarity, the shares are likely to remain in the doldrums and for this reason we have not added to our holding.

Pharmaceuticals AstraZeneca and GSK, which we don't own, outperformed as the market reacted positively to a deal signed on drug pricing for Medicaid and direct-to-consumer sales in the US.

Contributors 

Banks Standard Chartered, Barclays, NatWest and Lloyds delivered strong gains, especially towards the end of the period as fears that the Budget could lead to a meltdown in the gilt market and expected windfall taxes failed to materialise. These factors, together with the Bank of England's decision to reduce capital requirements, helped them to close some of the valuation gap with Asian and European peers.  

Ryanair announced better-than-expected results and encouraging comments on forward bookings. Exposure to eastern Europe also leaves it as one of the few liquid names that could benefit from a Ukraine/Russia ceasefire.

From a relative point of view, we benefited from avoiding RELX, BAE Systems and Experian.

Activity 

We took profits from Standard Chartered and Barclays to control position sizes following further strong performance. We remain enthusiastic about the outlook for both. We invested the proceeds into 3i, Marks & Spencer and Smurfit Westrock where we remain confident in their medium-term prospects despite recent weakness.

Fund 10-year discrete performance

Past performance is not a guide to the future. Source: Artemis/Lipper Limited, class I accumulation GBP to 31 December 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. Returns may vary as a result of currency fluctuations if the investor’s currency is different to that of the class.

Outlook 

For the first time since Covid, we are no longer more optimistic on the outlook for UK consumer spending than consensus. Modest fiscal tightening combined with little real income growth will leave this measure dependent on a decline in the (elevated) savings rate. This, we feel, is likely, particularly if lower inflation allows the Bank of England to cut interest rates faster. We are not bearish, but instead find ourselves in agreement with the consensus growth forecasts for the UK economy. Politics looks unlikely to fade into the background and we can see the potential for another period of elevated uncertainty should there be a challenge to the prime minister post the local elections in May. 

Globally, loose fiscal and monetary policy should be supportive for economic growth and markets. Under Donald Trump's presidency, geopolitics is never a straightforward call and there will be many potential changes to the global order in the year ahead. While these are difficult to predict, Trump does pay attention to markets and opinion polls, which is worth remembering if either one has a severe reaction to any of his policy decisions.

This year is likely to be one where multiple expansion is harder to come by, meaning the bulk of returns will come from earnings growth and income. Against this backdrop we believe that our portfolio companies are well placed to perform: we continue to find an above-average number of stock-specific insights and so are hopeful that the fund's earnings growth can exceed consensus forecasts. Combining net earnings growth, yield and starting valuations, we see scope for another year of attractive real returns in 2026. We would however caution that after three consecutive years in which returns have averaged about 25% per annum and given the current less extreme valuation dispersion within the market, it feels sensible to expect more modest gains.