Artemis Funds (Lux) – US Extended Alpha
Q2 2026 update

Artemis Funds (Lux) – US Extended Alpha is an actively managed fund. The fund invests principally in equities of companies that are listed, headquartered or that exercise the predominant part of their economic activities in the USA. Its objective is to increase the value of shareholders’ investments, primarily through capital growth. 

Review of the quarter to 30 June 2026

The S&P 500 index delivered strong returns during the second quarter of 2026, despite concerns about the Middle East conflict and its economic impact. In a more ‘normal’ environment, geopolitics might have defined market sentiment, but the sheer weight of capital being committed to the buildout of AI infrastructure means these are far from normal times.

Against such a backdrop, it would be tempting to focus solely on AI. Yet our long book has exposure to many other areas. Several of these have been neglected by the market, but we believe they offer a highly attractive trade-off between risk and reward. They include:

• Healthcare: from health insurance through to life sciences, the sector is recovering following a difficult period; healthcare is now our largest sector overweight (5%)
• Companies where we think concerns about the impact of AI have been overdone, such as Jones Lang LaSalle, S&P Global, Visa and ServiceNow 
• Transport and packaging companies J.B. Hunt Transport and Smurfit Westrock, which are set to benefit from a potential cyclical recovery
• Aerospace companies ATI and Crane, which are exposed to long-term growth trends

Performance

The fund outperformed its benchmark during the quarter, with strong returns predominantly coming from stock selection in the technology sector. The fund is overweight in companies that are part of the AI supply chain and underweight in software ones. Stock selection in industrials, healthcare and energy also contributed. 

The fund's net return was 23.6% in US dollar terms for the three months to 30 June versus a return of 15.2% from the S&P 500 index.

Past performance is not a guide to the future. Source: Lipper Limited/Artemis for class I accumulation USD to 30 June 2026. All figures show total returns with dividends and/or income reinvested, net of all charges and performance fees. 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

The largest contribution to returns came from Advanced Micro Devices (AMD). It is a leader in producing the CPUs (central processing units) that are becoming increasingly important as the weight of AI investment shifts from training AI models towards inferencing and agentic-AI. 

Applied Materials rallied on strength in AI supply chains. Two of its customers, Micron and Samsung, increased their capex plans. Applied Materials now has two years of order visibility. 

SanDisk, the NAND memory company, rose as the market reacted positively to details of its long-term supply agreements with customers. Pricing of NAND memory has shot up over the past year due to growing AI demand and tight supplies. Solid state drives (which use NAND) enable fast access to data and are a vital part of AI infrastructure.

Texas Instruments, the analogue semiconductor company, reported that its revenues had grown more quickly than expected. Demand from its industrial customers is increasing and its sales to distribution centres have been strong. We are positive on the outlook for the analogue semiconductor market, which relies on lagging-edge foundries for production, where there has been a lack of investment. The company's management has highlighted the potential for a cyclical recovery in demand to tighten supplies and push pricing for analogue chips higher after weakness last year.  

The fund’s underweight exposure to Microsoft was supportive for relative performance, due to negative sentiment towards the hyperscalers. 

Beyond the technology sector, J.B. Hunt Transport benefited from signs that trucking pricing is improving after many years of weak demand. More stringent rules for registering truck drivers have taken up to 10% of them out of the market.

The short book generated positive returns from a range of positions, including consultants, Canadian telecoms and chemical companies.

Detractors

The largest detractor from the fund's relative performance during the quarter was not holding Intel. Of the companies we do own, energy companies CMS Energy and Cheniere suffered as gas prices fell on news of a (tentative) ceasefire in Iran. 

Construction company Primoris Services and toy and games maker Hasbro also underperformed. Primoris was particularly disappointing. We had viewed it as being well placed to benefit from the buildout of AI data centres and infrastructure for utilities. But it failed to execute. Forward bookings fell short of expectations and profitability fell due to cost overruns. Despite being exposed to attractive end markets, this lack of execution rang alarm bells and we sold the position.

Purchases 

At times, the carnage in parts of the software sector in the first quarter was indiscriminate. That created opportunities in stocks with a reasonable chance of surviving amid the new reality being created by AI – or even benefiting from it. ServiceNow and Twilio both fall into this camp. 

ServiceNow is a cloud software company with an enviable record of organic growth. It helps enterprises to automate and manage their workflows across IT, operations, HR and customer service. We believe its position as a trusted supplier means its customers will use it to help introduce AI into their workflows without compromising on either security or quality. As such, we expect ServiceNow to maintain its enviable top-line growth, an outcome that is not reflected in its valuation.

Twilio is a cloud software company with a focus on communications, allowing developers and enterprises to embed messaging, voice, email and authentication capabilities in their applications. Its management team, who we have met several times in the past year, argue that the move to agentic AI will generate a higher volume of communications (AI agents interacting with users) and that Twilio is perfectly placed to capitalise on this. Its revenue model is based on consumption rather than on the number of users ('seat-based' pricing) and we think Twilio is well positioned to experience accelerating organic growth from the agentic age. A p/e multiple of 20x at the time of purchase did not reflect this potential.

Health insurer UnitedHealth is a potential recovery story. All Medicare and Medicaid insurance companies have experienced substantial profit pressures in recent years. UnitedHealth's margins have been decimated by overzealous pricing (to win market share) and higher-than-expected costs (both more and sicker people seeking medical treatment). In some areas such as Medicaid, UnitedHealth is making losses. But there is light at the end of the tunnel. Insurance companies are now pricing more responsibly or are asking for better pricing from the government. This shift will take time but we believe these changes to pricing will eventually restore margins. UnitedHealth’s most recent results showed encouraging signs of progress that have yet to be reflected in the valuation of its shares. 

We added Morgan Stanley to the fund in May, which we funded by selling the holding in Evercore. A powerhouse in investment banking and wealth management, Morgan Stanley is well placed to benefit from a continued rebound in IPO and M&A activity, as well as from long-term growth in wealth management. The more we met with industry participants, the clearer it became that Morgan Stanley can derive substantial benefits from offering a broad platform of services, whereas boutiques with narrower offerings such as Evercore may lag. We have opened several short positions in weaker investment banks that we think will be squeezed by the bigger players over time. 

Sales

On the other side of the ledger, we took profits in Lam Research (semiconductor equipment), Southern Copper (miner), Newmont (precious metals) and GE Vernova (renewable energy and electrification). The latter's valuation had re-rated significantly because it is seen as an AI-themed stock.

Reflecting our preference for J.B. Hunt Transport, which has impressive margin and pricing potential, we exited railroad CPKC (Canadian Pacific Kansas City). We sold Primoris Services for reasons described above. Lastly, we sold out of Danaher, the life sciences business, after we lost confidence in the timing of a long-awaited inflection in its growth. In the absence of any firm evidence of improvement, we aren't being paid enough to wait.

In June, we used the strength in AI-related stocks and semiconductors to take substantial profits and reduce our exposure to semiconductors from a 5% overweight to roughly benchmark-neutral. We are now 7% underweight in technology more broadly and the Magnificent Seven. This is not due to any change in our positive view on AI spending fundamentals. We still believe there are many pinch points where demand exceeds supply (such as optical and power semiconductors and memory chips). We do feel, however, that share prices have potentially become too extended.

Short book

The fund has short positions in companies where we see evidence of overcapacity, cyclical risks, value traps or secular threats. We opened several new shorts in financial services, software and AI infrastructure equipment, where we believe expectations are likely to disappoint.

Outlook

As America celebrates its 250th anniversary, one must admire the resilience of its economy and the power of its financial markets. For a country whose inhabitants represent just 4% of the global population to account for 60% of the global stock market by value is testament to its innovation, growth and risk capital culture. The US is now the largest oil producer in the world, it is home to 11 of the world's 15 trillion-dollar companies, it spends more on defence than anywhere else and the dollar remains the global economy's dominant currency, despite headlines predicting its demise. US stocks continue to exhibit higher returns on equity than their global peers in all major sectors. US GDP has compounded at 5.3% on average since 1789 versus 3.5% in the rest of the world and US equities have delivered an annualised return of 9.9% over 150 years, beating every other developed market.

That said, it’s not all roses. The US deficit is huge, its political environment continues to decay, geopolitics and international relations have become more unstable and there are signs of exuberance in the stockmarket. Whilst valuations are high, they are not extreme in our view and growth in corporate earnings is robust. We remain cognisant of the risks and will look to be flexible with our positioning should our views change. As the sharp reduction in the fund's exposure to AI beneficiaries in June showed, we continue to believe in the importance of taking profits and trimming exposures whenever and wherever valuations look stretched. 

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. All figures show total returns with dividends and/or income reinvested, net of all charges and performance fees. 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.