Artemis SmartGARP Global Equity Fund
Q2 2026 update

• The Artemis SmartGARP Global Equity Fund outperformed the wider global market, returning 16.9% versus 14.2% from the MSCI AC World index
• The biggest contributors to returns included our holdings in Dell, Samsung and Elite Materials
• Most of the biggest negatives for returns relative to the index came from companies that the fund does not hold, such as Micron, SK Hynix and AMD

Review of the quarter to 30 June 2026

SmartGARP is based on the premise that, over the long term, markets are efficient and share prices are ultimately anchored to company fundamentals. In the short term, however, distortions often occur as a result of myriad factors, such as the emergence of compelling investment narratives ("this time it's different"), political events or changes in regulation.

Most active managers will say they focus on fundamentals and ignore this short-term noise. But that can be hard. Fund performance is published daily and the median tenure of a fund manager is just four years. Unfortunately, fund managers are often given little support when they do underperform – they are either fired, retire or are encouraged to change their philosophy and process to be 'more in tune with the times'.

To help manage the risks associated with short tenures, asset managers often favour larger teams. As a consequence, individual managers are not always able to fully express their philosophy or process and are less likely to invest heavily in the funds they manage. One only has to read S&P's 'SPIVA' reports, which compare actively managed funds against their benchmarks, to see the results: the performance records of many active managers are poor.

As a team, we are no more immune to behavioural biases than anyone else. We therefore built a process that anchors our decision-making in hard evidence. This does not mean we don't suffer when the fund underperforms in the short term (we invest in it heavily ourselves). But following this process does make managing short-term periods of underperformance easier. We have also chosen to be part of a business, Artemis, that gives us the freedom to build strategies that we believe in and that supports us through uncomfortable periods.

Performance

Despite our caution and the balance our portfolio offers, we were encouraged to see the fund outperform. It returned 16.9% over the quarter, some way ahead of the 14.2% return from the MSCI AC World index. That return put it in the top quartile of its peer group.

Past performance is not a guide to the future. Source: Lipper Limited/Artemis 30 June 2026 for class I accumulation 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. Classes may have charges or a hedging approach different from those in the IA sector benchmark.

Contributors/detractors

In terms of regional attribution, our allocations to the US and emerging markets were positive contributors, with Japan and Europe marginally detracting. At a sector level, our stock selection in technology accounted for the majority of the fund's outperformance, supported by communication services. Materials and healthcare were detractors. 

At a stock level, the biggest contributors were Dell (US), Samsung Electronics (Korea), Elite Materials (Taiwan), Nanya Technology (Taiwan) and SK Square (Korea). As this list suggests, SmartGARP currently has a preference for Asian technology stocks, whose valuations look more reasonable than those of their peers in the US. We do, however, remain vigilant. We are conscious that earnings estimates (the 'e' in p/e ratio) have increased extremely rapidly. 

As often happens in extreme market conditions, most of the biggest negatives for relative returns were companies that the fund does not hold, such as Micron, SK Hynix, AMD and Intel. Our holding in China Hongqiao, an aluminium producer, also detracted. Its shares fell as the conflict in the Middle East pushed input costs higher. 

Activity: Using SmartGARP to build robust portfolios

In terms of transactions, we increased the fund's exposure to Phillips 66, the US-based diversified oil & gas business, FedEx, Nutrien (Canadian fertiliser producer) and SK Square, a South Korean conglomerate which owns 20% of semiconductor giant SK Hynix. 

To fund these purchases, we removed Kepco and United Utilities following a deterioration in their fundamentals. We trimmed Elite Materials, whose valuation had become elevated after a period of strong performance. We also reduced our position in Meta, going more underweight relative to the benchmark. The table shows the adjustments we made to fund's sector positioning over the quarter.

At a regional level, the fund's exposure looks broadly the same. The fund remains heavily underweight in the US (45% of our portfolio versus 63% of the index), with an overweight in emerging markets (32% versus 12%), particularly in China and South Korea.

Source: Artemis as at 8 July 2026

Outlook

As we stand today, short-termism is prevalent. Retail investors are keen participants in equity markets, often through derivative products that are designed to give them leveraged exposure to the performance of a particular 'theme' or even a single stock. Professional fund managers, meanwhile, appear to be worried about missing out. Their cash levels are low, many equity strategists seem to be bullish and some of the world's largest companies are responding by issuing debt and equity at record levels. The risks appear to be increasing.

Over the second quarter, 70% of the market's returns came from the technology sector and 64% of its returns came from the US. The former is more alarming than the latter, given that technology accounts for just 32% of the index, while the US accounts for 67%. The biggest difference between the heights of the TMT bubble and today is that extremely strong growth in corporate earnings is holding down forward price-to-earnings multiples (although we note the cyclically adjusted price-to-earnings ratio in the US is at 41x versus a long-term average of 17x).  

On balance, then, we are cautious. Although the fund is underweight in many of the areas of the global market that we believe would be most vulnerable in a downturn, we are conscious that it would not be entirely immune. Equally, there is a risk that we underperform if today's investor enthusiasm shades into outright exuberance. 

In these conditions, we think the best way to manage uncertainty is to invest in stocks whose valuations are undemanding and where the fundamentals are supportive. This gives us a margin of safety. In aggregate, the portfolio is underweight in stocks where investors' optimism is not supported by the fundamentals and it is overweight in parts of the global market where investor pessimism is running up against improving fundamentals.