Artemis Funds (Lux) – US Smaller Companies
Q1 2026 update

Artemis Funds (Lux) – US Smaller Companies is an actively managed fund. The fund's objective is to increase the value of shareholders’ investments primarily through capital growth. The fund invests principally in equities of smaller companies that are listed on a recognised stock exchange in the USA. 

On 12 January 2026, the market capitalisation restriction limits for Artemis Funds (Lux) – US Smaller Companies and the Artemis US Smaller Companies Fund were amended. The funds now commit to principally invest in shares of smaller companies which, when first acquired, have a market value of less than $20bn, previously $10bn.

Review of the quarter to 31 March 2026

The year started strongly. In January and February, the US small-cap market was supported by positive sentiment surrounding artificial intelligence (AI) spending. There were also signs of the stock market broadening out, with attractive opportunities in a range of sectors. This was followed by uncertainty into March, as escalating geopolitical tensions in the Middle East drove oil prices higher. 

While US economic data remained resilient through January and February, sentiment weakened following the escalation in military action, prompting renewed concerns around inflation and a more prolonged higher-for-longer rate environment. This led to a repricing of monetary policy expectations, with rate cuts pushed out and bond yields rising through March. For smaller and mid-cap companies, this created a more nuanced backdrop, where underlying fundamentals remained broadly intact, but market sentiment became more volatile.

On the whole, US smaller companies held up well during the quarter, with the Russell 2000 outstripping returns from the S&P 500. While the escalation in macro concerns later in the quarter led to a pullback, performance earlier in the period and improving market breadth supported relative returns.

Beneath the surface, sector and factor dynamics were constructive. Within the Russell 2000, leadership was fairly broad, with financials, energy and defensive sectors such as healthcare and consumer staples outperforming through March, while more cyclical areas such as materials lagged. At the same time, there has been a shift back towards businesses with higher earnings quality. This follows a more speculative phase in 2025.

Valuations also became more supportive, with Russell 2000 multiples moderating back towards long-term averages over the quarter, leaving many smaller companies attractively valued relative to both their own history and large-cap peers. While earnings revisions softened modestly, this follows a period of strength and points towards a normalisation (rather than a deterioration) in fundamentals. Overall, elevated dispersion and improving quality leadership across the small-cap universe continue to create a favourable environment for active management, in our view.

Performance

The fund underperformed during the quarter, returning -0.4% compared with 0.8% for its benchmark. Due to the timing of pricing, the fund’s returns do not capture much of the market rally that happened on 31 March. Close-of-business numbers show the fund returning 2.1% for the quarter (net of fees), placing it ahead of its benchmark (0.8%). Stock selection contributed positively to returns during the three-month period. 

The fund’s performance over the 12 months to the end of March was strong, at 33.7% versus 25.3% for its benchmark, and it is in the top quartile of its peer group.

Past performance is not a guide to the future. Source: Lipper Limited/Artemis as at 31 March 2026 for class I Acc USD. 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.

*As at 6 Aug 2024 the benchmark changed to Russell 2000 NTR (Standard). Returns up to 6 Aug 2024 reflect those of the Russell 2000 TR.

Fund 10-year discrete performance

Past performance is not a guide to the future. Source: Lipper Limited/Artemis as at 31 December 2025 for class I Acc USD. 

*As at 6 Aug 24 the benchmark changed to Russell 2000 NTR (Standard). Returns up to 6 Aug 24 reflect those of the Russell 2000 TR.

Positives

Beneficiaries of AI data centre capex continue to perform well and contributed to the fund’s returns over the quarter:

• Applied Optoelectronics designs and manufactures fibre-optic networking products for internet and communications infrastructure. The stock performed particularly well in March after the company announced it would be ramping up capacity to supply lasers to hyperscale data centres.
• Coherent, a manufacturer of optical materials and semiconductors, was a strong performer in the quarter, largely driven by record-breaking results and a bullish outlook for AI-driven data centre demand. 
• Seagate Technology Holdings, which operates in the memory part of the data centre value chain, performed well, driven by strong results and robust demand for its heat-assisted magnetic recording technology. 
• nVent Electric provides liquid cooling and other equipment for data centres. Strong demand has bolstered the stock’s performance over the past year. 

Silver miner First Majestic Silver also performed well following a strong rally in precious metals at the end of 2025 and into 2026. We have since sold out of our position, taking profits.

Negatives

Repligen weakened during the quarter as the market took a more cautious view of its bioprocessing end market. We remain confident in the trajectory of its recovery.

Consumer credit provider Affirm Holdings is a high-beta volatile stock, so we monitor it carefully and manage our position sizing accordingly. It is sensitive to macroeconomic uncertainty, particularly around the labour market and the state of the US consumer. Negative headlines about private credit created some jitters around funding risk, although the company is well positioned on this. From a fundamental perspective, the company continues to execute well. 

A sell-off in commercial real estate companies – caused by fears of AI displacing high-fee, labour-intensive business models – hit Jones Lang LaSalle in the first half of February. The company reported robust results, which led the share price to recover somewhat, although the AI disruption risk persists. 

Recent performance of e-commerce company Wayfair, which sells furniture, home goods and decor online, was also affected by fears over the threat posed by AI. The balance of risk and reward remains compelling over the medium term, with the company positioned to benefit from a housing recovery and take market share in the home furnishings industry.  

Activity

We sold out of our positions in silver mining companies First Majestic Silver and Hecla Mining. Although the stocks were affected by the sell-off in materials caused by the Middle East conflict, we took profits following strong performance through the preceding months. We also trimmed our position in copper miner Hudbay Minerals, taking profits following strong performance.

We recycled capital into companies across a range of sectors, including freight provider J.B. Hunt Transport, Texas-based regional bank Cullen/Frost Bankers, manufacturer of aerospace engines and airframes ATI and toys and games business Hasbro.

In terms of positioning, our largest overweight continues to be industrials. Compared with last quarter, we significantly reduced our basic materials exposure. Our largest underweights are in energy, financials and technology.

Outlook

Looking ahead, the macro backdrop remains mixed but broadly supportive. Recent data continues to point to resilient, if moderating, US growth. GDP is tracking positive and activity indicators such as ISM manufacturing remain in expansionary territory despite some volatility. Encouragingly, underlying demand remains intact, with low customer inventories and improving construction-related activity suggesting a gradual recovery in short-cycle areas – notwithstanding ongoing cost pressures, particularly in commodities and components. We are closely monitoring M&A activity, with some sizeable transactions being struck in March. 

At the same time, uncertainty remains elevated. Geopolitical developments, fiscal dynamics and inflationary pressures, particularly from energy and input costs, continue to influence the path of interest rates and market sentiment. We expect a more variable environment for equities, where periods of volatility are likely but underlying economic conditions remain supportive enough to sustain opportunities, particularly in areas of the market where fundamentals are improving. Importantly, we are seeing attractive opportunities across a range of sectors, creating a favourable backdrop for active management. 

As always, our investment decisions are guided by our up/down framework, where we evaluate how much we think a stock could rise versus how much it could fall relative to its current share price, targeting an asymmetric risk/reward.