Artemis Monthly Distribution Fund
Q1 2026 update

Review of the quarter 

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

The market's 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 Middle East resulted in the biggest quarterly rise in the price of crude oil 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 cutting risk, locking in profits and selling off those areas of the market that had performed best through the first two months of the year. The only area of the market to post a positive return over the quarter was the energy sector. 

Performance

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.

With a return of 4.5% over the quarter, the portfolio significantly outperformed an average return from its peer group of -1.0%. The fund's equities, which accounted for 52% of its portfolio by the end of the quarter, were responsible for the majority of its strong absolute and relative performance. Beneficiaries of the wave of capital expenditure by AI hyperscalers performed particularly well. Memory-chip maker Samsung Electronics was the biggest contributor to returns over the quarter, while Siemens Energy, whose gas-powered turbines are used to power AI data centres, also moved sharply higher. 

As investors turned against asset-light software companies, those exposed to real assets rallied. Our holdings in gold miners (Kinross Gold and Agnico Eagle) and producers of industrial metals (Freeport-McMoran and China Hongqiao) were part of that rally. Although these holdings gave back a portion of those gains in March as investors responded to the war in Iran by taking profits, they remained key positives over the quarter.

In the fund's fixed-income portfolio, our longer-duration bonds rallied through the first two months of the year in response to evidence that inflation remained on a downward trajectory. We had been marginally increasing the duration of the fund's bond portfolio, so this was helpful for performance. However, bonds across the yield curve then sold off in response to the Iran war, reflecting concerns that a spike in energy prices would feed through to higher inflation. Amid fears of a sudden slowdown in economic growth, credit spreads in the high-yield bond market also widened, with the most economically sensitive sectors underperforming. 

Activity

The shape of the portfolio did not change materially over the quarter. In equities, we took profits in some of our better-performing holdings, including beneficiaries of the AI capex boom such as Mitsubishi Heavy Industries. We also pared back our exposure to European banks. We continued to reduce the fund's holdings in the insurance sector, which is where we see the greatest potential for any private credit-related stresses to emerge. 

Set against this, we added to holdings in energy companies (Chevron and Var Energi) and to energy-related names including Baker Hughes (oil field services) and Tenaris (steel pipelines). We also added to the fund's ‘core income’ holdings more broadly. 

We recycled the profits we took in equities into the fund's bond portfolio. Here, our preference continues to be for shorter-dated, higher-quality high-yield bonds. These represent around 60% of the fund's fixed-income portfolio and around a quarter of the fund overall. We believe the opportunity here remains compelling. 

In March we added to our holdings in government bonds as their prices fell and yields rose. Although we continue to believe the best absolute and risk-adjusted returns on offer in fixed-income markets are to be found in higher-quality high-yield bonds, the rise in yields seen in March made an increased allocation to US Treasuries appealing. Around 11% of the portfolio is now invested in government bonds. Despite this, the duration of the fund's fixed-income allocation remains significantly shorter than many of its peers, meaning it is less sensitive to changes in interest-rate expectations.

Outlook

Although the portfolio underperformed in March, it significantly outperformed in the first quarter as a whole. It also kept up reasonably well amid the strong rally in risk assets seen in early April. We believe this strong performance is testament to our approach of keeping things simple by holding a portfolio of bonds and equities that offer good value and good income. 

The Nasdaq recently posted its longest winning streak since 1992. Given the fragility of the ceasefire in the Middle East and an oil price that remains stuck near $100 per barrel, we wouldn’t have expected equity markets to be this strong. Yet we continue to believe that despite the obvious shorter-term challenges, the current environment is rich in opportunities for investors who are prepared to look for income in areas where many others are not.