Artemis Global Income Fund
Q1 2026 update

Summary

• The fund outperformed the MSCI AC World Index in January and February but underperformed in March. 
• Over the quarter, the fund returned 7.2% versus a decline of 1.3% in the index and of 0.6% in its peer group.
• We have reduced our holdings in banks, life insurers, and in some of the more highly valued beneficiaries of capital expenditure by the AI hyperscalers. 
• We have added to the fund's ‘core income’ bucket and increased its exposure to energy stocks.

Review of the quarter to 31 March 2026

Global stock market indices hit new all-time highs in the first two months of 2026. The themes that had characterised the latter part of 2025 – such as returns from capital-intensive stocks outperforming capital-light software companies, and weaker returns from the US market relative to its international peers – intensified.

This advance, however, came to a sudden halt at the end of February, when President Trump announced that major combat operations in Iran had begun. The US-Israeli campaign and Iran's strikes on energy infrastructure around the Gulf resulted in a more than 60% gain in the oil price in March and the biggest quarterly gain for crude since the first Gulf War. Amid worries of an inflation shock driven by higher energy prices, hopes of interest-rate cuts faded and the 10-year US Treasury yield pushed sharply higher, ending the quarter at 4.34%. In the equity market, investors responded by de-risking, locking in profits and selling off those areas of the market that had performed best through the first two months of 2026. 

Performance

The portfolio made a strong start to the year. By the end of February, it had returned 18.4% versus just 4.3% from the MSCI AC World Index. And while the fund fell by 9.4% in March and relinquished some of its earlier outperformance, it ended the quarter 7.2% higher versus a decline of 1.3% in the index. 

Just as the portfolio had benefitted from its exposure to South Korea, European banks and mining companies through to the end of February, these were the holdings that drove its relative underperformance in March. To manage risk, we had been taking profits in some of these areas through late 2025 into early 2026 following a very strong run of absolute and relative performance.

That share prices of gold miners such as Kinross Gold fell so sharply in March offers a useful insight into the way the markets are evolving. Historically, gold has tended to rally when geopolitical risk has increased, so we might have expected our holdings in gold miners to perform better in this 'risk off' environment. But the structure of the market has changed and gold has become a momentum trade, with individual investors using exchange traded funds (ETFs) to move in and out of the precious metal. Meanwhile, Kinross Gold's largest shareholder is now Van Eck, which provides 'thematic' ETFs.  Because retail investors and thematic ETFs – as well as highly levered hedge funds – now represent a much larger proportion of the market, reactions to exogenous shocks such as the war in Iran tend to be amplified. Profit taking (or ’de-grossing’ by hedge funds) occurs rapidly. Our task is to find sources of income and long-term capital growth by navigating this increasingly volatile environment.  

Past performance is not a guide to the future. Source: Lipper Limited to 31 March 2026 for class I Inc 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.

Positives

The fund enjoyed strong contributions from two of its holdings in South Korea: Samsung Electronics and Hyundai Motors. Strong demand for memory chips continued to translate into rising earnings forecasts for Samsung Electronics. Hyundai, meanwhile, was a beneficiary of mounting excitement over robotics and speculation that Boston Dynamics, in which it has a 25% stake, might be considering an initial public offering.

The vast AI data centres being constructed around the world will consumer huge quantities of electricity. As producers of gas-fired turbines, Siemens Energy and Dongfang Electric are direct beneficiaries of that demand. We have been trimming the holding in Siemens Energy for some time but began to buy into Dongfang, whose valuation and dividend yields are attractive, towards the end of last year. 

Investors' increasing enthusiasm for more capital-intensive assets was reflected in strong returns from companies with exposure to a range of raw materials, including copper (Grupo México), gold (Kinross Gold & Endeavour Mining) and uranium (Kazatomprom). 

Negatives

The most significant detractor from returns over the quarter was the fund's underweight to semiconductors. Although it owns Samsung Electronics, it is zero weighted in TSMC, SK Hynix and Micron. Shares in all three companies posted strong gains through the quarter as the hyperscalers' new commitments to invest in infrastructure pointed towards continued shortage of memory chips through until 2028 at the earliest. 

Activity

The process of locking in profits in the best-performing areas of the portfolio continued. Set against this, we have also added to holdings in the energy sector and to our bucket of ‘core' income-generating stocks. 

The quarter's profit-taking and sales were concentrated in three areas:

1. Banks: While we have been reducing our exposure to European banks for some time as their valuations moved higher, we retain a meaningful weighting to the continent's retail banks. We have also pared back our holdings in US regional banks given the prospect of rate cuts may have receded. The net result is that, although the fund retains a significant exposure to the banking sector, it had fallen from a peak of 27% to 22% by the end of the quarter. 

2. Life insurers: The fund's exposure to life insurance, which could be vulnerable to any stresses that emerge in private credit markets, is almost down to zero. We have fully exited Aegon and Sompo but retain a holding in Samsung Life, which is a beneficiary of the Korean market rerating.

3. AI capex beneficiaries: We have taken down exposure to Samsung Electronics and Siemens Energy and exited Mitsubishi Heavy Industries. In the case of Siemens and Mitsubishi Heavy, valuations have re-rated substantially since we first invested and it seemed prudent to take profits. Although the underlying fundamentals of both companies remain strong, they appear to have been eclipsed by momentum as the main factor driving movements in their share prices. We bought Mitsubishi Heavy Industries' shares back in 2022 when they traded on a price-to-earnings (p/e) multiple of just 10x. By the time we sold the last of our holding in January, that had risen to over 35x. 

Set against that, we have added to:

1. ‘Core’ income: We describe companies in areas such as pharmaceuticals and telecoms that pay high and reliable dividends as the fund's income-generating 'core'. They now account for 30% of the portfolio. While this is more than we have allocated to this bucket over the past two years, it is still below the average allocation of 38% since the strategy's inception. 

2. Energy: We have been increasing our exposure to the energy sector since late 2025. By the end of March, energy stocks accounted for 14% of the portfolio. This offered the fund useful protection as energy prices surged higher in March.

Outlook

Amid turmoil in the Middle East, we continue to refer to the well-established framework we use to describe the 'regime change' taking place in the global economy and financial markets. Some of the long-term dynamics it highlights have intensified in recent months:

• Inflation and interest rates now seem likely to remain higher and more volatile. 
• The rules-based international order continues to be challenged by political populism. 
• In an attempt to insulate themselves from geopolitical tension, countries are increasingly prioritising self-sufficiency and reliability over supply-chain efficiency.
• With President Trump hinting he could take the US out of Nato, and amid Iranian strikes on its neighbours, defence spending seems likely to increase. 

Amid heightened political and economic uncertainty, we have a portfolio that is well diversified geographically, with holdings in companies listed in 22 countries and 14 currencies. We also take comfort from having a portfolio that is significantly (around 30%) cheaper than the index on a price-to-earnings basis, which pays twice the dividend yield and whose holdings are growing their earnings and dividends more quickly. The portfolio continues to remain highly differentiated relative to its peers as well as the index. We estimate that the overlap between our holdings and the average fund in the Global Equity Income sector is just 5%.