Artemis Global Income Fund
Q2 2026 update

The second quarter saw the US and Iran making stuttering progress towards a fragile ceasefire. It also witnessed the first meeting of the Federal Reserve's rate-setting committee under the leadership of its new chairman. In any other quarter, either might have defined market sentiment. But the sheer weight of capital being committed to the buildout of AI infrastructure – and changes in the structure of equity markets – means that these are far from normal times. 

Over the first half of this year, the hyperscalers – Alphabet, Amazon, Meta, Microsoft and Oracle – collectively pledged hundreds of billions of dollars of additional investment to building out their AI capacity. As movements in equity markets over the quarter reflected, the most immediate beneficiaries of this wave of investment were not the hyperscalers themselves but the companies who make the semiconductors that are at the heart of their vast data centres.

So, while global market indices moved higher over the quarter, the returns in South Korea, where semiconductor manufacturers are key index components, were spectacular. (Two semiconductor companies – SK Hynix and Samsung Electronics – account for over half of the Korean market by value). Semiconductor stocks also led the gains in the US, reflecting surging prices for memory chips and their lengthening order books. The Philadelphia Stock Exchange Semiconductor index, which tracks the fortunes of chip manufacturers, posted the largest quarterly gain in its history, returning 88% in US dollar terms. 

While these gains may seem dramatic, they simply reflect the fact that, in its sheer size, the wave of investment in AI is without precedent. The hyperscalers are collectively committing trillions of dollars in capital to the AI buildout. It remains unclear what returns – if any – this investment will eventually produce. For now, however, it remains the engine driving earnings in the tech-heavy US market higher and propelling growth in the US economy.

Performance

Although the fund generated a healthy positive return over the quarter, it handed back a portion of the outperformance it had amassed relative to the benchmark index in the first quarter of the year. Despite this, returns remain significantly ahead of the index and its peer group over the year to date, as well as over one, three and five years.

Past performance is not a guide to the future. Source: Lipper Limited to 30 June 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.

Underweight in technology unhelpful for relative returns 

Our portfolio holds several suppliers of the essential 'picks and shovels' of the AI investment boom, such as semiconductors. In the technology sector, they include Cisco Systems, Nanya, Lam Research and Samsung Electronics. It also has indirect exposure to SK Hynix and Samsung through investments in Samsung Life, Samsung C&T and SK Inc, which have meaningful stakes in the two Korean semiconductor giants. All of these holdings performed well over the quarter.

As our long-term clients will know, however, an absence of meaningful dividends, below-average free cashflow yields and, in some cases, high valuation multiples mean the fund has a structural underweight to technology. As such, the biggest negative for the fund's returns relative to the index were the technology stocks it doesn’t own, such as Micron Technology, AMD and Intel, all of which enjoyed triple-digit returns.

European bank holdings performed well

Reflecting our desire to offer a portfolio that has little in common with market indices or its peers, we have a longstanding overweight in European banks. Even after five years of strong returns, it appears that few of our peers have significant allocations to this part of the market. Over the decade that followed the financial crisis, banks de-leveraged, de-risked and found that regulators prevented them from engaging in speculative activities or over-extending their credit books. As a result, they now resemble highly cash-generative utilities. 

In a quarter that saw the European Central Bank raising interest rates and so boosting banks' net interest margins, our holdings in Raiffeisen and Monte Paschi made notable contributions to returns. Returns from Monte Paschi received an additional boost when Banco BPM and Intesa Sanpaolo tabled rival takeover bids. 

As the acquisition of Germany's Commerzbank by Italy's UniCredit suggests, the long-awaited process of cross-border consolidation in the European banking sector finally appears to be under way. This is the real prize for investors. In the meantime, our banks continue to return a healthy flow of cash to us through dividends and share buybacks.

Defence stocks and gold miners gave back some of last year's gains

Our holdings in defence companies and gold miners made substantial contributions to the fund's outperformance through 2024 and 2025. In the second half of last year, however, we began to trim, rebalance or exit these positions. In part, this was because their valuations had become less attractive. We were also conscious they had become momentum trades and their share prices were running ahead of fundamentals. 

Activity

We are pragmatic rather than thematic investors and our portfolio has always held a number of idiosyncratic stock-level opportunities that don’t tie into any wider trend. For much of the last year, however, it was clear that many of our strongest performers could be loosely grouped into the following themes: 

• Suppliers of AI 'picks and shovels'

• Gold miners

• Defence contractors

In many cases, the fundamentals of companies that are aligned with these themes – the powerful growth in their earnings and free cashflows – remain strong. But the strength of their share-price returns and the rise in their valuation multiples suggested this had become more widely recognised. Over the first half of the year, we redeployed some of the profits we had made in these areas to other parts of the market. To be clear: we are open to the possibility of adding to these holdings again. For now, however, there is the potential for heightened volatility in equity markets – particularly in some of most popular momentum trades – and it seems prudent to broaden our exposure into other areas of the market.

In some cases, this shift was a recognition that the outbreak of war in Iran had fundamentally changed the set-up for markets. The destruction of energy-sector infrastructure in the Gulf and the blockading of the Strait of Hormuz began to push energy prices higher. That, in turn, squeezed demand for gold in India, the world's second-largest bullion market. Gold would once have acted as a safe haven in times of war. On this occasion, however, its price fell in sympathy with other risk assets, making it clear that it had become a momentum trade. In recognition of these changed realities, we took some capital out of gold miners and reinvested it in oil companies. 

Elsewhere, we took some profits in chipmakers, miners and defence contractors and used the proceeds to add new positions in more defensive areas such pharmaceuticals, telecoms and food producers. In a volatile market, we want to ensure we have a well-diversified portfolio with holdings that can perform under a variety of economic conditions and market scenarios. We would emphasise, however, that this represents a rebalancing of the portfolio rather than its reinvention.

Outlook

In one light, the outlook for equity markets might appear positive: we can see powerful growth in corporate earnings across multiple sectors and geographies. In the first quarter of this year, US companies reported that their earnings per share were 18% higher than in the same period last year, marking their fastest rate of growth since the post-Covid reopening year of 2021. The vast amounts of liquidity being supplied by the AI investment boom are surging through multiple supply chains worldwide, fuelling economic growth and creating opportunities for those investors who can anticipate where it might flow next. (Might Korean banks such as Hana and KB prove to be the next beneficiaries of the AI-driven boom in the Korean economy?)

Viewed in this way, the exuberance being expressed by some areas of the equity market may appear well founded. At the same time, we are conscious that it largely rests on the wave of investment in AI and that it is taking place against a backdrop of war, volatile energy prices and at a time when 10-year Japanese government bonds (JGBs) are touching their highest level in 30 years. Markets are also navigating a change in personnel at the head of the US Federal Reserve. As inflationary pressures grow and yields on JGBs rise, some of the essential plumbing of the global financial system is being reconfigured in real time. 

Meanwhile, after a long bull run, retail investors are playing a larger role in markets, particularly in the US and Korea. They are increasingly using leveraged ETFs to trade in and out of thematic baskets of stocks and individual company shares. These vehicles amplify gains but also magnify losses. As a result, share prices of companies that are part of the most popular momentum trades have become extraordinarily volatile and, in our view, somewhat detached from fundamentals. Shortly after the quarter ended, Samsung announced that its quarterly operating profits were 19 times higher than in the same quarter last year. In response, its shares fell by 10%.

In view of all these uncertainties, and given that cyclically adjusted valuation multiples are at historically elevated levels, it feels sensible to avoid some of most popular areas of the equity market. We have a portfolio that is well diversified geographically, with holdings in companies listed in 21 countries and 15 currencies. We also take comfort from having a portfolio that is significantly 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.