Artemis Atlas Fund
Q1 2026 update

Review of the quarter to 31 March 2026

The Artemis Atlas Fund fell by 3.9% over the quarter, compared with a positive return of 1.0% from the Bank of England base rate. Much of the weakness came in March, as the war in the Middle East drowned out fundamentals and a largely favourable corporate earnings season. While the short book provided good downside protection, it was not enough to offset a fall in the long book.

Although this short-term disruption was frustrating, it presented us with opportunities to add selectively to the fund's long book, cover some shorts at attractive prices and rotate into some less macro-sensitive short positions. When the valuation multiple of the fund moved lower in March, we believed it simply pointed to higher future prospective returns, rather than to any deterioration in fundamentals. That belief was borne out as the market rallied in early April.

Past performance is not a guide to the future. Source: Artemis/Lipper Limited, class I accumulation GBP 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 class.

Contributors 

In the beverages sector, the fund saw a strong contribution from its long position in Coca-Cola Hellenic Bottling Company. It delivered solid full-year results, with notably good momentum in its emerging-markets segment. Indeed, 65% of its revenues now come from (faster-growing) emerging markets, helping to underpin its top-line growth. A short position in a UK-listed alcoholic beverage producer also worked well as its shares hit lows not seen since 2012. An update from its new chief executive indicated any turnaround would not be quick. Although we still see further scope for downgrades, the valuation largely reflects that possibility. We have now materially covered this position and wave goodbye to what has been a terrific performer for the short book.

In the personal care, drug and grocery stores sector, our long position in Marks & Spencer continued to perform well, benefiting from industry data showing a continued recovery in sales, not just in food, but also in fashion, home and beauty. As the company continues to put last year's cyber incident behind it, impressive sales data should help to refocus the market's attention on its growth potential, on the benefits of its restructuring and on what we believe is its very modest valuation. This outweighed a small loss from a short in the sector.

The third largest contributor by sector came from personal goods (consumer durables and apparel), where a short position in a UK fashion house worked well. That its share price fell in reaction to a set of earnings that were broadly in line with expectations may have been driven by investor positioning. Companies that trade on high multiples as they restructure come under recurrent pressure each time they publish results.  

Detractors

Our net long exposure in banks, including Barclays and Standard Chartered, detracted from returns over the quarter, with the hedge from our short positions in European names proving insufficient to offset the broader sell-off. Investors' concerns focused on significant shifts in interest-rate expectations amid higher oil prices. We believe the impairments faced by UK domestic banks would be modest even if rates were to move higher. The regulatory bolt-tightening that took place following the Global Financial Crisis means capital levels and asset quality across the UK banking sector are high. Moreover, the sector recently demonstrated its resilience through the real-life stress test posed by Covid. Towards the end of the quarter, we added to NatWest. This addition helped fund returns modestly in late March. 

With the exception of 3i, Atlas is short in the private equity elements of the investment banking and brokerage services sector. These positions, particularly in a US private-credit business, made strong contributions. But they were offset by long positions in ICG, Bridgepoint, St James’s Place and 3i, which fell on a succession of releases from Action, the discount retail chain. The first was a slight slowdown in like-for-like sales in France, which accounts for a third of its business. The second was the announcement that it would start a pilot in the US, where the first Action stores are due to open in late 2027 or early 2028. Costs of the US pilot were a part of the market's worry, but at €350 to 400m spread across four years, this seems a sensible investment given the scale of the opportunity (it would nearly double the addressable market). We added to the position in 3i on the weakness. St James’s Place was hurt by worries over potential disruption from AI. We retain our conviction in a business that we believe will be assisted by AI, rather than hurt by it.

In the travel and leisure sector, our net long position in airlines was unhelpful, with a short position in a low-cost airline being insufficient to offset the drag from long positions in International Consolidated Airlines Group (IAG) and Ryanair. IAG delivered pristine numbers on the last business day of February. By Monday, the US/Israel/Iran were at war. Along with Ryanair, IAG has one of the highest returns on invested capital in the airline industry, which should give it a significant degree of protection. 

Activity

The biggest activity in the quarter was the taking part in an equity raise by Rosebank Industries, an industrials business led by Melrose Industries' former management team. Its 'buy, sell, improve' approach has served it well. It now sees significant opportunities in the US. 

We used the weakness in 3i's share price to add materially to our long position. We did the same with RELX, which was consigned to a basket of stocks deemed to be at risk from AI. We think differently, believing that AI will help it improve its offering and were able to add to the position when the distribution yield (dividend yields plus share buybacks) was more than 8%. 

We opened a new short in the European reinsurance sector, where we expect falling pricing to feed through into stock valuations over time. We also opened a short in the US private credit sector, where we remain concerned about credit quality. Offsetting this, we are long in ICG, which is more exposed to European private credit, where we see risks as being materially lower. 

We established a new short in a European staffing business. Its growth has been weak as have its gross margins. Regulatory changes in its home market appear to be putting its earnings at risk. We suspect the barriers to entry here are low and that AI could be disruptive. Worries about the latter mean the stock is unlikely to re-rate.

Outlook

The fund continues to be long in higher free cashflow businesses that can either sensibly reinvest in their growth or return capital to their shareholders. We still favour ‘value’ over ‘growth’ and selectively continue to favour cyclical exposure – where valuations are even more attractive than they were three months ago – over defensive names. 

The central tenets of the fund’s investment process remain in place. There is a good level of dispersion both within and between market sectors, presenting good opportunities for relative-value pair trades. Many of the fund's long positions continue to be blessed with long runways for growth, with underappreciated and expanding economic moats. Many of its short positions, meanwhile, continue to lose market share.

While opportunities are abundant, investors will need to exercise patience. The world is moving quickly, particularly with respect to AI advances and geopolitics. In this uncertain environment, we think developing detailed stock-level understanding remains essential to identifying winners and losers within particular industries. We still see meaningful opportunities both long and short and believe Atlas should be able to deliver alpha on both sides.