Artemis Corporate Bond Fund
Q1 2026 update

Review of the quarter to 31 March 2026

In a volatile quarter for bond yields, returns from corporate bonds were largely determined by underlying movements in government bonds.  

January was choppy rather than dramatic. UK government bonds outperformed other markets through to the middle of the month only to subsequently relinquish those relative gains.  

February was more awkward. UK government bonds performed strongly, with 10-year gilt yields falling from about 4.6% to around 4.3%, their lowest level for 15 months. Meanwhile, the credit market was grappling with a surge in new issuance from the AI hyperscalers – Amazon, Alphabet, Meta, Microsoft and Oracle. At the same time, it was attempting to discount the potential threat that Anthropic's powerful new AI models might pose to established companies and industries. The net result was a weakening in some parts of the credit market, particularly in the bonds of technology and tech-adjacent companies. 

March brought no respite from the volatility. The UK government bond market reacted violently to the war in Iran, with 10-year yields rising from 4.30% to 4.91%, having briefly touched 5.11%, the highest level since 2008. The fund had ended February with a slightly shorter duration position than the benchmark. Although the size of that position was relatively modest, the quantum of the move higher in yields was such that it made a material contribution to returns. As gilts sold off aggressively, we began to reduce the fund's short-duration position. With government bond markets regaining some of their composure heading into the end of the quarter, that move also helped.  

In the context of the volatility seen in the government bond market and the increase in global risks caused by the closure of one of the world's most critical shipping lanes, the changes in credit spreads were relatively subdued: spreads widened by just five basis points. 

We have become increasingly concerned about three things: exposure to private credit (particularly among life assurers); potential disruption to incumbents by AI; and the scale of bond issuance by technology companies. Each of these may be manageable in isolation, but not necessarily together – especially given that credit spreads are not particularly generous. In view of this, it seemed prudent to end the quarter defensively positioned.

Performance

The fund modestly outperformed its benchmark over what was a challenging quarter, with a return of -1.9%. 

Past performance is not a guide to future returns. Source: Lipper Limited to 31 March 2026. 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 quoted share class. 

Activity  

January was busy. New issuance returned, creating some relative-value opportunities for active credit investors. We switched from Ford into Whitbread, from Eastern Power Networks into London Power and from Osprey into Anglian Water's longer-dated bonds. We bought new issues from New York Life and Danske Bank, but passed on a number of other new issues where we thought the pricing unattractive. We trimmed Centrica and Quadgas. 

We were also active in the market for funding agreement-backed notes ('FABNs') issued by life insurers. We sold Athene and switched from Massachusetts Mutual into a FABN from the higher-rated New York Life. We began actively exiting FABNs at the end of the quarter, as our concerns around private credit grew. 

February was dominated by issuance from technology companies and the debate over AI-related disruption. We bought a  new issue from Oracle early in the month but sold it later at a small loss as sentiment deteriorated. We also bought a 100-year bond from Google, largely on relative value grounds and in anticipation of demand from index trackers. We sold it just before the month end for a modest profit.  

We also bought a new euro-denominated issue from Sage. We sold it at a small loss as the market continued to de-rate bonds issued by software companies. We sold what we could of Pearson early in the month as it fell victim to the same trend. By the end of February, we had no meaningful direct exposure to technology and very little adjacent exposure. 

March was extremely busy and our direction of travel was clear: we increased the quality of the portfolio and favoured more defensive areas. On the first day of the month, we leaned into the risk sell-off, buying Picorp and topping up Standard Life (formerly known as Phoenix), then took profits quickly as the sector recovered. 

More broadly, almost everything we did in the final month of the quarter was de-risking. We cut insurance exposure materially due to concerns over private credit, selling Rothesay and halving our exposure to New York Life. We reduced Legal & General and switched some of the proceeds into Zurich. We exited Wells Fargo, Goldman Sachs, Morgan Stanley and Deutsche Bank. 

In hindsight, we were lucky to receive only a small allocation of Close Brothers' newly issued bonds. This let us avoid most of the pain when short seller Viceroy published a report alleging that the company had misrepresented its exposure to the Financial Conduct Authority’s motor finance redress scheme. We drew comfort from reassuring comments from Close Brothers' management and from the Financial Conduct Authority’s final determination on motor finance and added to the position.  

We moved away from parts of the credit market vulnerable to an energy shock, selling subordinated debt from Gatwick Airport and Ford. Concurrently, we bought Shell and TotalEnergies, as well as Haleon and Reckitt. These names performed poorly in relative terms and we found their weakness surprising, given the wider risk-off move. Having sold more credit than we bought, we temporarily parked some of the liquidity in five-year gilts, taking the fund's gilt exposure up to around 3%. 

There was only one new issue in March, from Danone. In our view, it was attractive, combining defensive characteristics and strong value relative to a peer group that also looked cheap. We put in a large order, got a good allocation, bought more in the secondary market, and the bond performed well. It is now our sixth-largest holding. 

Outlook  

We are not in a better position than anyone else to predict what President Trump will do next or how the Iranians will play their hand. Our team’s view is that there is no quick solution to the conflict, and we expect the markets to swing from one headline to the next.  

Irrespective of events in Iran, markets will continue to grapple with worries about private credit, AI disruption and bond issuance by technology giants. Although we believe the credit market may be too relaxed about these concerns, we haven't positioned the fund in anticipation of a violent sell-off. By way of context, the fund ran with an 8% cash position in September 2022 at around the time of the Truss 'mini Budget'; today, our holdings in short-dated gilts and cash are closer to 3.5%. 

UK government bonds – especially two-year and five-year gilts – appear to be cheap. The market is currently pricing in UK base rates of 4.25% by year end, up from 3.25% only a month ago. We tend to believe that is too pessimistic. The brave thing to do would to be to take a long-duration position. But this is not the time to be brave or attempt to time the volatility. The market is moving violently from one headline to the next and we are conscious that adding too much duration could prove painful in the short term.