Artemis Atlas Fund
Q4 2025 update

Review of the quarter to 31 December 2025

Q4 was dominated by the Labour Party’s second Budget of its term in office. After much kite flying, the chancellor opted for a ‘kick the can down the road’ approach: spend now and tax later. While it may depend on your perspective, it would seem as if ideology is trumping rationality, albeit we note the chancellor is trying to bind three immutable things: (i) the Parliamentary Labour Party (PLP), (ii) the electorate and (iii) the bond market. In the medium term, the bond market arguably has the most power to dethrone a government (see Liz Truss), in time allowing for a refresh of mandate via the electorate. However, in the near term the PLP has more power. The British economy would be greatly helped by a period of consistency from the government. Fortunately, consumers and corporates look healthier, with significant idiosyncratic opportunities to the UK market, and we expect geopolitics to remain front and centre. To quote Heraclitus, "the only constant in life is change".

The Artemis Atlas Fund returned 1.2% in the fourth quarter compared with 1.0% from the Bank of England base rate.

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.

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. Admittedly our short book in this sector hindered performance a little.

Transportation also made a strong contribution to the fund. A modest fall in the price of oil helped the airlines in general, while transatlantic concerns eased for IAG’s BA/Iberia operating units and Michael O’Leary took to the tapes to talk up strong trading at Ryanair. 

A short position in an online portal benefited from a material share price decline as management responded to the potential threat from AI by investing heavily in its IT capabilities. This will weigh on margins, leading to a fall in earnings, while the need for investment has dented investors’ confidence that the ‘moat’ around the business is impenetrable.

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 is in administration. The other two-thirds of the business continue to trade well. We have added to the fund's holding as we believe the compelling store economics and significant long-term roll-out potential remain unchanged.  

Marks & Spencer fell as concerns grew over Christmas trading in the UK. Subsequent results were reasonable and we remain optimistic about the prospects for the retailer, albeit we note the broader subdued consumer environment.

Bookmaker Evoke was hit by higher-than-expected tax rises in the Budget, which led us to materially trim the position. 

A short position in a miner worked against us. We believe the opening of a new mine in Guinea will lead to oversupply in the iron ore market, but other commodity prices rose sharply during the period.

Activity

We added to NatWest, Lloyds and St. James’s Place as the worst of the Budget fears were avoided. 

On the short side, we added more to positions in: a life insurer to balance macro risk and financials exposure; a platform business which performed favourably for Atlas but is now suffering, having underinvested in the face of potential AI disruption; and a private equity holding which continues to see significant outflows from its ‘evergreen’ wealth funds.

In terms of sales, we trimmed the long position in Next ahead of Christmas. While Standard Chartered remains a high-conviction long holding, we took some profits to control position size. We also continued to take profits from a short in a UK tech business. 

Outlook

• The UK economy: This is a mixed picture. On the one hand, the UK consumer and corporates have de-levered materially over the last decade. Most notably richer consumers (who account for the bulk of consumption) are in relatively rude health (albeit weakening as this Labour government continues). However, this is in part a consequence of the government having socialised the debt onto its balance sheet (via policies such as furlough). The Budget has deferred the pain of tax raising, funding the upfront welfare payouts by borrowing more. The ‘smorgasbord’ has been clumsy, with the bulk being taxes on ‘working people’ via the freezing of thresholds. A period of calm would benefit the UK economy and allow it to focus on growth. We would note the advance of AI could result in a secular lift in global unemployment.
• Current thinking: The fund continues to be long higher free-cashflow businesses that can invest sensibly for growth or return capital to investors. We would still favour ‘value’ over ‘growth’ and selectively continue to favour more cyclical exposure (for example in civil aerospace engines) over defensive, as we think operating leverage has further to run in both directions. However, stock-specific insights are required to complete portfolio construction, with valuation and a view on quality of earnings/economic moats contributing.
• Process: The central tenets of the fund’s process remain. The UK stock market maintains high dispersion within and between sectors, presenting good opportunities for mean reversion and relative value pairs. Many long positions remain blessed with long runways for growth and underappreciated and expanding economic moats; many shorts continue to bleed market share while returns deteriorate. The hunt remains for more structurally challenged long-term business models where the management/market have not woken up to the reality of the world of today/tomorrow.
• Positioning: In aggregate, the net positioning is of long cheaper and fast-growing businesses with lower leverage and short more expensive ones. Net exposure is relatively flat across sectors, with financials a net long.