Artemis Funds (Lux) – Short-Dated Global High Yield Bond
Q2 2026 update

The fund is actively managed. It aims to generate a return greater than the benchmark, after the deduction of costs and charges, over rolling three-year periods, through a combination of income and capital growth.

Review of the quarter to 30 June 2026

The halfway point of the year is a good time to take stock. Although progress towards ending the conflict between the US and Iran was faltering, oil prices had returned to their pre-conflict levels by June. Despite this, short-dated government bond markets continue to price in an inflation premium. Five-year yields on US Treasuries, UK gilts and German bunds rose by 51, 40 and 18 basis points in the first six months of the year. The impact on two-year yields was even more pronounced, with increases of 70, 45 and 41 basis points respectively. That yields rose most sharply in the US partly reflected the fact that the first meeting of the Federal Reserve's rate-setting committee under its new chairman, Kevin Warsh, was more hawkish than expected.

It is inevitable that our short-dated strategy will feel some impact when yields at the front end of the curve move higher. But our active approach, particularly during periods of volatility, and our ability to harvest a relatively high yield and use it to generate compound returns, saw the fund returning 3.5% over the second quarter.

As a result, the fund produced a return of 2.1% (in dollar terms) over the first half of 2026. That may not be a return to set pulses racing, but we think it demonstrates the resilience of the asset class and endorses our active approach at a time when short-dated yields have risen sharply.

Past performance is not a guide to the future. Source: Lipper Limited for class I Acc USD to 30 June 2026. As this class is in a different currency to the fund’s base currency, a local-currency equivalent benchmark has been used. 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.

Contributors

US online recruitment portal ZipRecruiter rallied as it announced a buy-back of around half of a $550m bond maturing in 2030. Although this position has caused us a few headaches over the past year, we always felt that, while the number of job searches has been relatively subdued, Zip’s highly discretionary cost structure allowed it to protect its cashflows. It can continue to generate cash while it waits for an uptick in recruitment activity. 

Our holding in specialty chemicals company Ineos Quattro rose early in the quarter amid a recovery in cyclical risk. Its preliminary results highlighted aggressive restocking by its customers. The accompanying outlook statement indicated that a lack of imports into the European market due to the closure of the Strait of Hormuz could push margins higher. 

Home healthcare provider Accendra, formerly Owens & Minor, rallied as it took steps to shore up its balance sheet by extending the maturity profile of its debt at attractive terms.

Australian agrochemical producer Nufarm was buoyed by strong soft-commodity prices and positive interim results, which highlighted its profit growth and ongoing debt repayments. 

Detractors

There were thankfully few negatives, but we did see some underperformance from our holding in SIG, which distributes building products. The recovery of the UK construction industry remains sluggish and expectations that interest rates could move higher did little to help sentiment. 

Medical device company Embecta underperformed as its first-quarter results were worse than expected. We had anticipated some weakness as it transitions away from its legacy injection-pen business towards providing injection technology for the upcoming launches of generic GLP-1 weight-loss drugs. We added to the position on weakness as we still see a cash-generative business with a dominant market position and clear growth opportunities.

Fund 10-year discrete performance

Past performance is not a guide to the future. Source: Lipper Limited for class I Acc USD to 31 December 2025. As this class is in a different currency to the fund’s base currency, a local-currency equivalent benchmark has been used. 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.

Purchases (primary market)

Demand for a new euro-denominated bond from global chemical producer Ineos was strong and it raised €700m after initially aiming for €400m. It sees considerable upside from the closure of the Strait of Hormuz, which left its Chinese competitors facing shortages of feedstock. The company also outlined the transformational impact that its ‘Project One’ facility should have once it comes online in 2027, allowing it to service the European market from low-cost feedstock sourced in the US. 

Elsewhere in the basic materials sector we participated in new issuance from North Sea oil & gas producer BlueNord as it prematurely refinanced bonds due to mature in 2028. 

We also bought a new five-year bond issued by global oil services firm Paratus Energy as we like its highly specialised pipe-laying business. Its margins are attractive, capacity in the niche is tight and it has a long backlog of orders. 

We added exposure to TMD Friction, which makes brake materials for passenger and commercial vehicles. Brake pads are an attractive part of the auto ecosystem. Spending is non-discretionary (brake pads are essential and they wear out) and because every type of vehicle – whether electric or petrol-powered – needs brakes, it is not exposed to obsolescence risk. 

In June, we bought new issuance from global specialty chemicals producer Nouryon Finance. It supplies the home and personal care segment, as well as providing the specialist chemicals used in performance coatings and fibre sectors. We like its diversified portfolio and, as its impressive margin performance across the cycle has shown, it enjoys pricing power. 

We took part in a refinancing transaction by a company we have long invested in, security monitoring provider Verisure. Spending on security monitoring is largely non-discretionary. Indeed, for many of its commercial clients, it is often mandated by their insurance coverage. Verisure continues to benefit from the scale and network-density benefits, being the number one player in 14 of the 18 markets in which it operates. 

After having previously held the bonds of leading auction house Sotheby’s, we took part in a new issue during the quarter. We like the strength of its market position (it operates as part of a duopoly with Christie’s) and we recognise the power of its trusted brand, which is vital in a market where establishing provenance is part of the service. Sales in the art market have rebounded strongly, increasing by 20% on last year. 

We added PLS Group, a cost-advantaged lithium producer located in Western Australia. It continues to expand production and has been investing in downstream processing in South Korea through its joint venture with POSCO. 

Elsewhere in the new issue market, we bought a bond from IHO, the holding company for the Schaeffler family's automotive interests. IHO is the modestly levered vehicle through which the family holds large stakes in tyre giant Continental, as well as in the eponymous Schaeffler AG, which supplies drive trains and electronics to the auto industry.

Purchases (secondary market)

We added a position in MI Windows & Doors, a window manufacturer with a strong market position in the south-eastern US. The “& Doors” part of its name is slightly misleading – the only doors it makes are patio doors. Windows are a much more attractive business: they tend to be custom-made while doors are mass produced to generic dimensions. As such, windows aren't subject to the cyclical de-stocking and re-stocking of inventory in the way that other building products are. 

When bonds in Heathrow Airport weakened on fears the war in Iran would affect long-haul travel, we added a position.

We bought back into US consumer finance lender PRA Group on the back of encouraging performance in its sector.

Ahead of an expected refinancing in global packaging and printed marketing company RR Donnelley's 2029 bonds, we increased our exposure.

Within chemicals, we rotated our exposure from Ineos bonds due to mature in 2029 into its 2030 bonds, where the yield was higher and where we saw greater upside potential versus more call-constrained bonds within the structure. 

Following disappointing results, we added to our holding in Embecta, which supplies injection technology for diabetes treatments. While we had anticipated its weak quarterly numbers and adjusted the position size accordingly, we bought a fraction too early as the bonds declined further. Yet while the market reaction surprised us (it seemed to be led by weakness in its share price), the company remains prodigiously cash generative. Although the growth outlook now appears less certain, this looks like more of a concern for its shareholders than its bondholders. 

We added Emergent BioSolutions (‘EBS’), a highly specialised pharmaceutical manufacturer focused on 1) treatments for biological threats (such as smallpox, Ebola and botulism) and 2) treatments for emergency opioid overdoses. Like many firms that were conscripted during the Covid crisis (it also performs contract manufacturing), EBS faced severe disruption in recent years as demand for vaccines fell short of expected levels. Demand for its core treatments has remained firm. Growing nervousness in Europe around potential access to the strategic vaccine stockpile held by the US underpins demand looking forward. 

We also added a position in UK and European high-end health and racquet-club operator David Lloyd as its bonds became sufficiently short-dated to qualify for the fund.

Sales

On the sales side, we mainly sold bonds where there was limited (or no) upside remaining, such as:

• US bearings maker RBC
• North Sea energy producer Ithaca Energy
• Windscreen repair giant Belron (although we exited its euro-denominated bonds, we retain its US dollar-denominated issue)
• Global car-parts supplier Forvia
• Australian lithium and iron ore miner Mineral Resources
• US clothing maker Levi’s
• Gaming operator Allwyn
• UK specialist mortgage lender Together Finance
• US healthcare consumables supplier Medline, which had become fully valued after its upgrade to investment-grade status
• Japanese flash memory manufacturer, Kioxia, which benefited from the AI-related rally

We sold our position in German women’s clothing retailer CBR, whose fundamental performance was weaker than we had hoped and whose valuation didn’t justify retaining the position. 

After its acquisition by Bally’s Intralot, we exited UK gaming group Evoke.

We sold our position in healthcare operator Accendra's 2029 bonds. The conclusion of its debt negotiations prompted a rally, but we can see fewer positive catalysts going forward.

We also exited US supermarket giant Albertsons. We worry about margins in the US food retail sector given inflationary pressures, and thought the bond’s premium pricing was no longer justified. 

Outlook

The most likely path for the global economy from here is that inflation moves slightly higher and growth continues to be underpinned by the ongoing surge of AI-related capital expenditure. It is easy to be cynical about what returns the wave of investment in AI will eventually produce. And although we share that cynicism, the facts on the ground are the investment is happening today; worries about what returns (if any) it produces are a problem for the future. 

We also note that there has never been a group of companies with a greater ability to invest enormous quantities of capital and that these companies embarked on this capital investment cycle with low leverage and prodigious cashflows. Our focus on short-term cashflows, our portfolio's lack of exposure to the AI hyperscalers and its low (and declining) exposure to the companies directly benefiting from this investment boom means we are comfortable.  

More broadly, we continue to feel the inflationary backdrop is less ominous than feared. Labour markets look far looser than they did in 2022, when workers had unusually high levels of bargaining power in the recently re-opened post-Covid global economy. 

If worries about oil prices and Iran continue to ease, investors will look further into the future and focus on company-level business fundamentals rather than simply being buffeted by macro news. We would welcome this. The core of our strategy is stock selection rather than top-down asset allocation, so it suits us when bond prices move in response to more idiosyncratic factors. A market in which bonds issued by good companies are rallying and those issued by bad companies are selling off is fundamentally healthy. In our view, indiscriminate rallies are just as noxious as across-the-board sell-offs.

We will continue to rely on stock selection to drive returns rather than adding risk or increasing duration. We do not feel the balance between risk and reward supports an outright grab for yield; we will not lurch into emerging market or CCC-rated bonds. Instead, we will stick to investing in bonds issued by resilient, cash-generative companies for relatively short periods and repeating the process. We are fortunate that the all-in yields available in our part of the market remain attractive and should underpin returns over the rest of 2026 and beyond.