Why I used to tell people not to buy my asset class
In the world of journalism, ‘man bites dog’ is supposed to be the ideal headline – the more unusual the event, the more newsworthy it is.
I suppose the equivalent inversion of expectations in my industry would involve a fund manager who tells you not to invest in their asset class. Because of the way we make money, a professional investor who told you to put your cash somewhere else could either be described as very honest, or – more likely – very, very stupid.
So where does that leave the short-duration strategic bond manager who five years ago got himself into a lot of trouble rubbishing the prospects of the very asset class to which he is now hoping to attract capital?
As you’ve probably worked out, that fund manager was me. And in my defence, I would say the prospects for the asset class are as good today as they were bad back then.
The launch of the Artemis Target Return Bond Fund
The Artemis Target Return Bond Fund was launched in December 2019 with the aim of achieving a positive return of at least 2.5% above the Bank of England (BOE) base rate.
Back then, when interest rates stood at 0.75%, this seemed like a sensible target, and was one we were doing reasonably well against.
In contrast, the returns being generated by short-duration bond funds were laughable.
At an industry event at the time, I made a presentation in which I put together a table of our main competitors’ short-duration bond funds, with strips of paper covering up the yield.
I then went down the list, reading out the name of each fund along with a short description put together by its marketing department, before I pulled away the strip of paper to reveal a yield figure that in every case amounted to less than 1%.
As you can imagine, the other asset managers found my presentation a lot less amusing than I did.
The return of inflation
Within a couple of years, however, the smile had been wiped off my face. The next year saw the arrival of Covid and the many billions spent on furlough schemes. It was followed by Russia’s invasion of Ukraine and a subsequent surge in energy prices.
Inflation was back and suddenly it wasn’t the short-duration bonds that didn’t make sense.
By the end of 2023, our fund went from a nominal target of 3.25% a year to 7.75%, during a period when rising interest rates hammered fixed income1. We felt it prudent to switch to a more achievable aim.
Adapting to the era of higher interest rates
Did we accept defeat too easily? I prefer to think of it as adapting to a completely different environment. The only way we could have protected against what happened in 2022 was if we had predicted the rise in inflation, then shorted the bond market. Neither of these was realistic.
We couldn’t have known Russia was going to go to war with Ukraine. Even the Russian soldiers didn’t know they were going to war with Ukraine. There is anecdotal evidence that many of them were still selling the diesel from their tanks the day before they crossed the border2.
Meanwhile, shorting bonds is a risky business and not just because the trade could move against you. When you short bonds, not only do you give up on the income they generate, but you have to pay for the privilege. In other words, negative duration means negative yield, and the longer you hold the position, the greater your losses.
This made outperformance through shorting extremely difficult over the medium to long term – even when interest rates were below 1%.
With interest rates where they are today, it is mathematically impossible.
Renaming to the Artemis Short-Duration Strategic Bond Fund
I would argue that shorting in this market is also unnecessary. Our renamed Artemis Short-Duration Strategic Bond Fund is currently yielding 5.5%, with a duration of 2.5 years3. This means that even if interest rates were to increase by 1 percentage point over the course of the year (and assuming we sat on our hands and did nothing to mitigate the impact), you would still make 3%.
This is why it made sense to change the fund’s name and benchmark. Yields at these levels allow us to deliver a decent income to investors with only a modest amount of duration risk, making the chance of ending up with a truly nasty return about as likely as… well, about as likely as a man biting a dog. Woof!
Notes and references
1 Artemis and Bank of England
2 https://www.rferl.org/a/russian-troops-belarus-exercises-ukraine/31711282.html
3 Artemis as at 31 October 2025
FOR PROFESSIONAL INVESTORS AND/OR QUALIFIED INVESTORS AND/OR FINANCIAL INTERMEDIARIES ONLY. NOT FOR USE WITH OR BY PRIVATE INVESTORS.
CAPITAL AT RISK. All financial investments involve taking risk and the value of your investment may go down as well as up. This means your investment is not guaranteed and you may not get back as much as you put in. Any income from the investment is also likely to vary and cannot be guaranteed.
This is a marketing communication. Before making any final investment decisions, and to understand the investment risks involved, refer to the fund prospectus (or in the case of investment trusts, Investor Disclosure Document and Articles of Association), available in English, and KIID/KID, available in English and in your local language depending on local country registration, available in the literature library.
Risks specific to Artemis Short-Duration Strategic Bond Fund
- Market volatility risk The value of the fund and any income from it can fall or rise because of movements in stockmarkets, currencies and interest rates, each of which can move irrationally and be affected unpredictably by diverse factors, including political and economic events.
- Currency risk The fund’s assets may be priced in currencies other than the fund base currency. Changes in currency exchange rates can therefore affect the fund's value.
- Bond liquidity risk The fund holds bonds which could prove difficult to sell. As a result, the fund may have to lower the selling price, sell other investments or forego more appealing investment opportunities.
- Higher-yielding bonds risk The fund may invest in higher-yielding bonds, which may increase the risk to capital. Investing in these types of assets (which are also known as sub-investment grade bonds) can produce a higher yield but also brings an increased risk of default, which would affect the capital value of the fund.
- Credit risk Investments in bonds are affected by interest rates, inflation and credit ratings. It is possible that bond issuers will not pay interest or return the capital. All of these events can reduce the value of bonds held by the fund.
- Leverage risk The fund may operate with a significant amount of leverage. Leverage occurs when the economic exposure created by the use of derivatives is greater than the amount invested. A leveraged portfolio may result in large fluctuations in its value and therefore entails a high degree of risk including the risk that losses may be substantial.
- Charges from capital risk Where charges are taken wholly or partly out of a fund's capital, distributable income may be increased at the expense of capital, which may constrain or erode capital growth.
- Emerging markets risk Compared to more established economies, investments in emerging markets may be subject to greater volatility due to differences in generally accepted accounting principles, less governed standards or from economic or political instability. Under certain market conditions assets may be difficult to sell.
- Income risk The payment of income and its level is not guaranteed.
- Counterparty risk Investments such as derivatives are made using financial contracts with third parties. Those third parties may fail to meet their obligations to the fund due to events beyond the fund's control. The fund's value could fall because of loss of monies owed by the counterparty and/or the cost of replacement financial contracts.
- Mortgage- or asset-backed securities risk Mortgage- or asset-backed securities may not receive in full the amounts owed to them by underlying borrowers.
Important information
The intention of Artemis’ ‘investment insights’ articles is to present objective news, information, data and guidance on finance topics drawn from a diverse collection of sources. Content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security or investment by Artemis or any third-party. Potential investors should consider the need for independent financial advice. Any research or analysis has been procured by Artemis for its own use and may be acted on in that connection. The contents of articles are based on sources of information believed to be reliable; however, save to the extent required by applicable law or regulations, no guarantee, warranty or representation is given as to its accuracy or completeness. Any forward-looking statements are based on Artemis’ current opinions, expectations and projections. Articles are provided to you only incidentally, and any opinions expressed are subject to change without notice. The source for all data is Artemis, unless stated otherwise. The value of an investment, and any income from it, can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested.
