Artemis UK Special Situations
Q1 2026 update

In the video, managers Andy Gray and Henry Flockhart report on what contributed to and detracted from performance in the three months to 31 March 2026. 

Written review of the quarter to 31 March 2026 

While investors' attention in the final quarter of 2025 focused squarely on the Budget, the start of 2026 saw it shifting back to geopolitics and artificial intelligence (AI). In January, US forces captured Nicolás Maduro, the Venezuelan president. A short while later, President Trump announced his intention to acquire Greenland.  

In early February, meanwhile, Anthropic launched a new model, Claude Opus 4.6. The subsequent announcement of new AI tools targeting specific industries sparked sharp sell-offs in the shares of those companies perceived to be at greatest risk of disruption, with much of the selling being focused on high-margin, capital-light software as a service (SaaS) businesses. Although these companies had previously been awarded high valuation multiples, the worry was that new AI tools could lower barriers to entry into their markets and so undermine their pricing power. The flip side of the resulting 'SaaSpocalypse' was that investors sought shelter in companies perceived as being ‘AI-proof’, such as miners, industrials and pharmaceutical companies. 

As February ended, geopolitical tensions flared up again as the US partnered with Israel to launch airstrikes on Iran, which responded by closing the Strait of Hormuz. Around 20 million barrels of oil would normally pass through the Strait each day, so its closure led to a sharp spike in the price of oil to over $100 per barrel, with natural gas and refined products also being impacted.    

By the end of the quarter, the FTSE 100 index, home to heavyweight energy companies Shell and BP, had risen by 3.4%. In contrast, the mid-cap FTSE 250 index, which has a greater bias towards companies sensitive to UK consumer spending, had fallen by 5.1%. The net result was that the FTSE All-Share index returned 2.4% over the quarter. Our fund underperformed, falling by 4.9%.   

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

Market concerns around private credit weighed on ICG, the alternative asset manager. Redemptions from some open-ended private credit funds fuelled negative sentiment, while fears that a new generation of AI tools could disrupt the software sector did little to help. We feel ICG is well insulated from both threats. Its exposure to the software sector is limited and its closed-ended fund structures offer stability. We continue to believe that ICG's strong track record and the long duration of its earnings are being undervalued by the market. We added to the holding.   

Betting companies Entain and Flutter Entertainment sold off for two main reasons: the increase in gaming duty announced in the UK's late-November Budget; and the rapid growth of prediction markets in the US. In the short term, both businesses can mitigate the impact of tax changes through cost-saving measures such as reducing sponsorship. Over time, we expect both companies will gain market share as smaller operators exit.  

The second negative, as mentioned, was the competitive threat from the rapid growth of prediction markets in the US. Led by Polymarket and Kalshi, these exchanges allow customers in states that have not yet legalised online sports betting to speculate on a range of events, including sports. In response to the weakness, we added to the existing holding in Entain and started a new holding in Flutter Entertainment. 

Publishing company Future warned that Google's AI overviews were having a negative impact on traffic to its websites from conventional web searches, squeezing its advertising revenues. Initiatives to reduce Future's reliance on Google are already underway, and, in our view, these offer reasons for optimism.   

Online travel agent On The Beach reported a slowdown in bookings for its holidays to destinations such as Turkey, Cyprus and Egypt due to the conflict in the Middle East. While earnings guidance was withdrawn, the company continues to trade profitably, and we expect operational momentum to be re-established in the months ahead.   

Contributors 

Our strongest performer was Beazley, which received a bid approach from Zurich. While the initial bid was rejected, an agreement was reached at £13.35 per share, which we feel represents a good deal for Beazley's shareholders. This represents a healthy uplift from our initial purchase price of £6.82 in July 2024. 

Oxford Instruments performed well after releasing a positive trading update that showed order intake continuing to recover from weakness in the previous quarter.   

Elsewhere, IG Group's turnaround under its new management continued to gain momentum. New customers are being attracted by improved product features and the volatility seen in financial markets in March should translate into increased trading activity. 

GSK's decision to promote Luke Miels, formerly its commercial director, to replace Emma Walmsley as chief executive, was warmly received by the market. There are expectations of increased commercial focus and enhanced productivity from R&D. The company's results for 2025, meanwhile, came in marginally ahead of consensus and revenue guidance for 2026 was in line with expectations. Importantly, the new chief executive reiterated that the company continues to target revenues of £40 billion by 2031. 

Activity 

We added three new holdings in the quarter: Flutter Entertainment, RELX and Videndum. We supported Rosebank Industries' fundraising. And we sold our holdings in Smiths Group and Morgan Advanced Materials. 

Flutter Entertainment owns sports-betting brands Paddy Power, Sky Bet and Betfair in the UK along with FanDuel in the US. A combination of strong brand recognition (thanks to its heritage in fantasy sports leagues) with industry-leading technology has allowed FanDuel to become the US market leader in online sports betting, with a 47% market share. The US sports-betting market is still in the early stages of its development and is growing strongly as new states opt to make it legal.   

RELX is a global provider of data and information tools to the insurance, scientific and legal professions. Because it supplies business-critical information, RELX has hitherto been seen as enjoying high barriers to entry, allowing it to generate consistent earnings and fund product development. Recent advances in AI, however, have caused investors to call some of these assumptions into question. The company remains confident in its growth, believes AI will allow it to enhance its offering and we see the potential for its future results to dispel the market's recent fears. 

We participated in a refinancing of Videndum, which provides broadcasting equipment. This business has a market-leading portfolio of products but the challenges created by the Hollywood screenwriters’ strike and by President Trump's trade tariffs stretched its balance sheet. A new executive chairman, Stephen Harris, joined in late 2024. We know him well from his time as the chief executive of Bodycote and he has already implemented a cost-savings programme whilst negotiating with the company's lenders. The equity injection in which we participated should allow the company to launch new products and drive its future growth.   

One of our existing holdings, Rosebank Industries, defied the gloom surrounding the UK market to raise £1.9 billion to fund the acquisition of two industrial businesses in the US. These deals are a significant step forward for Rosebank, which will own three distinct US businesses with combined revenues of around $2.5 billion. All three have significant scope for operational improvements and higher margins, allowing Rosebank's management to continue to pursue the ‘buy, improve, sell’ strategy at which it has proved so adept. Management believe operating margins can be improved from c.15% to 21-22% over the next three-to-five years.   

We sold the fund's long-term holding in Smiths Group. In January 2025, the board announced a plan to reorganise the structure of the business. Two divisions, Detection and Interconnect, would be sold, leaving the US-centric John Crane and Flex-Tek units. The realisation of value for the two businesses it sold has been excellent, coming in at the high end of expectations. In our view, Smiths Group's share price now reflects the quality of its remaining businesses.  

We also sold another industrial holding in the quarter. Our initial investment in Morgan Advanced Materials in September 2023 was based on the company’s pivot towards faster-growing markets such as semiconductors. But slower-than-expected sales of electric vehicles resulted in excess capacity of component parts building up through the supply chain, impacting orders. With operational momentum lagging our expectations, we sold what remained of our holding. 

Outlook 

Although it has been a challenging start to the year, the fund has a history of rebounding strongly from periods of market dislocation. Since the turn of the year, we have had the 'SaaSpocalypse', worries about private credit and the conflict in Iran. And while Russia's invasion of Ukraine in 2022 may seem to offer a recent parallel to these disruptions, we are cautious about placing too much reliance on it. The starting point for the economy and for financial markets today is quite different than it was four years ago. Higher unemployment and more restrictive monetary policy mean inflation – and inflation expectations – are lower. Valuations of many consumer-focused stocks, meanwhile, are cheaper today than they were when the Ukraine war broke out, which overlapped with the post-Covid recovery in consumer spending. 

In the fund, our flow of new investment ideas remains strong. We can see particular opportunities in the small and mid-cap areas of the UK market, from which there have been substantial outflows. Given this selling pressure, share prices do not reflect company fundamentals. For us, this signals opportunity and we are excited about the potential returns from these overlooked parts of the UK market.