Artemis Funds (Lux) – Short-Dated Global High Yield Bond
Q4 2025 update

Objective

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 31 December 2025

In the UK, the long-awaited Budget package was clearly more politically focussed than it was economically – with a wide range of new or expanded spending pledges to come into effect immediately, but with new taxation measures (other than continued bracket creep) deferred until 2028/29, just before the next election. Notwithstanding, it was well received by the gilt market, which focussed on the notionally increased headroom. For us, a fiscal setting that relies increasingly on the generosity of Office of Budget Responsibility projections, as well as tax increases deferred for another day, does not look all that stable. Our strategy’s short duration focus is increasingly keeping us out of fights we don’t want to have. 

The Artemis Funds (Lux) Short Dated Global High Yield Bond strategy returned 1.6% over the quarter, beating the benchmark Secured Overnight Financing Rate of 1.0% and the Global High Yield Bond peer group average of 1.2%.

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.

Positives

Towards the end of the quarter, our holding in Isabel Marant (the French fashion label) added significantly. We believe that with bonds still yielding over 20% for senior secured paper in a company that appears to be recovering operational momentum, there is still further upside in the position.

Our exposure to European and US transport provider, Mobico, proved to be a contributor as sell-side research was published largely backing our view that the negative news flow was temporary. It also highlighted its thriving Spanish core business in which we see considerable value.

Negatives

A large negative contributor was our position in INEOS Quattro, the global specialty chemicals company. But we remain of the view that Quattro’s combination of cost advantage, scale and deep liquidity reserves are underappreciated by the market.

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

We were able to participate in several new issuances during the quarter, including US grocery giant, Albertsons. We like Albertsons' scale and modest leverage with strong growth coming in its pharmacy segment. 

We added a new 5-year bond issued by Greek utility, Public Power Corporation, which is the fastest growing utility in Europe, enjoys minority state ownership and has a clear and deliverable plan to secure investment-grade ratings (from BB-) over the term of the bond. 

We also bought a new 5.5-year bond issued by Israeli energy producer, Energean. The bonds were issued to refinance its existing 2027 maturity bonds which we held in the fund. 

In addition, we re-established a position we had previously exited on valuation grounds: US legal service provider, Veritext.

Finally, to oppose the unjustified (as we see it) weakness in the chemicals sector, we added short-dated (2028) bonds issued by INEOS Group (the sister company to Quattro). We believe it will benefit from the chemicals recovery first, given its upstream position.

On the new issue front, we participated in a new $650m BB-rated 5.25-year issue from Norwegian harsh-environment drilling operator and contractor, Odfjell. 

The fund took a position in European specialist recruitment firm, House of HR. The company focusses on staffing in the engineering and consulting professions as well as a ‘temp-to-perm’ segment which targets small to medium enterprises (SMEs). These bonds had come under some pressure due to macro concerns in the region, which clearly impact hiring levels. Notwithstanding this, we have long viewed the company as being well managed and have seen clear signs of supportive trends in the sector. 

Sales

We sold our position in the more junior bonds of Australian/US building products maker, James Hardie as it traded towards all-time highs with little upside remaining. 

We also trimmed our position in Gulf of Mexico/America energy producer, W&T Offshore, after a period of strong returns and to allow for an increase in sector risk via the aforementioned Energean. 

We sold Currenta, which operates one of the largest chemical sites in Europe (CHEMPARK) in Germany as landlord and service provider (power, water, etc.). As we added exposure to operators themselves such as INEOS Styrolution, we reduced exposure to Currenta as it has significantly outperformed, and we wanted to manage overall exposure as we added beta in the sector.

Outlook

There are always risks in the market and at the present, the main risks appear to be threefold: the chance of an AI overbuild and correction; a US growth shock; or expectations of US Fed cuts underwhelming/curve steepening. Importantly though, none of these look that threatening from a high-yield perspective. Taking each in turn:

1. While AI-linked issuance has picked up in the high-yield space, it remains a very small part of the overall market, and as such the systemic risk to the market is low. It is likely that this sector will grow this year, so it may become a bigger issue in 2027/2028.

2. A US growth shock is a risk for this year – but there are some very powerful forces in play to prevent it. Firstly, the US administration will want to prime the economy as much as possible ahead of the midterms in November. Secondly, the US Federal Reserve has become highly politicised – and pressure to ease policy is likely to increase next year, given that midterm incentive. Finally, the AI spending boom seems unlikely to slow in 2026. In 2025 it is estimated it added over a percentage point to growth – as such, it probably will remain supportive for growth next year.

3. Turning to US monetary policy: Chair Jerome Powell's replacement, once appointed, is likely to give the Fed a dovish tilt. However, if inflation remains sticky, the labour market proves resilient and a narrative develops of a 'monetary policy mistake', we could see a scenario where the market starts to price more hawkish monetary policy over the long term, even if short-term rates remain relatively constrained. This could pressure markets. 

However, before we start worrying about another 2022, it is important to note the key differences between now and then. For one, while inflation may overshoot on the margin, we are nowhere near the world of March 2022 with 8%+ CPI prints and rates near zero. In addition, the yields on dollar-denominated high-yield bonds are 2.3% higher than they were at the beginning of 2022, providing both reduced room to widen and greater carry to offset the negative impact of any widening. The duration of the market – its sensitivity to changes in yields – has also significantly reduced, falling from 3.8 to 2.9 years. In short, while monetary policy is a risk, the market is much better prepared for it today than it was at the start of 2022.

The odds are that this year will be like most other years in the high-yield market (including the last three years), with a mid-to-high single digit annual return. As with every year, there are risks on the horizon that could derail this scenario – but to us, these look manageable.