Artemis Monthly Distribution Fund
Q2 2026 update

Equity markets worldwide posted strong returns over the quarter, swiftly recouping the losses they suffered in reaction to the outbreak of hostilities between the US and Iran. As the quarter progressed, robust macroeconomic data, one of the better corporate earnings seasons in recent memory (earnings for companies in the S&P 500 index grew by 28% on the same period last year) and a tentative ceasefire helped US and global stock markets to reach new all-time highs. Bond markets also reacted positively to the de-escalation of the conflict between Iran and the US as central bankers began to look past the inflationary impulse from the war.

Perhaps the most important development away from the Middle East was the ongoing AI investment boom. 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 higher in the tech-heavy US market and propelling growth in its economy. 

Performance

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.

The fund generated a solid return of 5.7% over the quarter but lagged the average return of 6.6% from its peer group. Its performance in both absolute and relative terms remains strong over all longer timeframes.

With respect to positive contributors, our South Korean holdings – Samsung Electronics, SK Inc and Samsung Life Insurance (which hold significant stakes in SK Hynix and Samsung respectively) – did well. Elsewhere, Cisco, which provides much of the connectivity infrastructure for AI data centres, was a strong performer, as was Prysmian, which makes high-voltage and fibre-optic cables.

Our holdings in the shares of European banks such as Raiffeisen (which is based in Austria but has exposure to rapidly growing economies in the Baltic) and Italy’s Monte dei Paschi also made a strong contribution.

The biggest detractor from the fund’s relative performance was its modest exposure to technology. Around 7 to 8% of our portfolio is invested in the sector, which is markedly less than the peer group's average weighting of 18%. And, if we look at some of the best performing multi-asset funds over the quarter, the unifying theme seems to be that they have a significantly higher exposure to tech.

Elsewhere, our holdings in energy companies were weak given improved sentiment around the US-Iran conflict and the re-opening of the Strait of Hormuz. Given the evident fragility of the peace in the Middle East and the need for the world to restore its depleted oil reserves, we think it makes sense to retain some exposure to this sector.

Activity

At a high level, we have been reducing the portfolio’s exposure to equities and adding to fixed income. By the end of the quarter, equities accounted for 52% of the portfolio while bonds accounted for 48%. Some of the fund’s equities have performed extremely well and, as a result, the upside potential is not as great as it once was. It made sense to us to take profits in the likes of Samsung Electronics, Kinross Gold and Freeport-McMoRan and reinvest them in fixed income. For example, we added a new holding in the bonds of Oceaneering, which designs, manufactures and operates underwater remotely controlled vehicles and robots for use in the energy and infrastructure industries. It also has a burgeoning defence-related business. Its technology is vital for keeping undersea infrastructure operational.

In fixed income, the fund owns some government bonds (just under 11% of the portfolio at the end of the quarter), but the majority of our fixed income exposure is to shorter-dated, higher-quality high-yield debt. We have been enthusiastic about the opportunities here for some time and we think they remain compelling. The high-yield market has substantially improved in quality over the past 25 years; the highest-rated BB bonds now account for a much greater proportion of the market than lower-rated B and C ones. In contrast, government finances across the western world continue to look stretched, with outgoings increasing much faster than revenues. 

Outlook

Viewed in one light, the outlook for markets may appear positive: we can see powerful growth in corporate earnings across multiple sectors and geographies. The vast amounts of liquidity generated 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 may flow next.

Looked at 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 this wave of investment in AI and that it is taking place against a backdrop of war, pronounced volatility in energy prices and at a time when 10-year Japanese government bonds 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 Japanese government bonds rise, some of the essential plumbing of the global financial system is being reconfigured in real time.

Meanwhile, after a long bull market, retail investors are playing a larger role in markets, particularly in the US and Korea. Many are 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.

We believe our portfolio’s composition, with its bias to value, European banks and short-dated high-yield bonds, makes it an effective blend with other multi-asset funds with a higher weighting to more widely held assets, such as US mega-cap stocks and government bonds. At a time of significant concentration in markets – and in many investors’ portfolios – we think offering something different makes sense.