Artemis Funds (Lux) – Leading Consumer Brands fund update

Source for all information: Artemis as at 31 March 2025, unless otherwise stated. 

Objective 

The fund is actively managed. It aims to increase the value of shareholders’ investments primarily through capital growth over a five-year period.

Performance

Markets got off to a strong start in January, delivering positive returns as leadership broadened out – Europe and value outperformed the US and growth, respectively. AI beneficiaries wobbled momentarily following news of mounting Chinese competition (DeepSeek), diverting attention to formerly out-of-favour companies in the European financial and consumer discretionary sectors. Europe maintained its position as the standout region throughout the quarter. 

Chinese equities also did well initially, aided by more encouraging economic data and hopes of further stimulus measures.  

This backdrop helped the fund start the year in good shape thanks to its low exposure to the US and technology and hopes of a return to form for many consumer goods companies.

However, the fund sold off in March as concerns over tariffs grew, and it experienced a significant drawdown in early April in the aftermath of the ‘Liberation Day’ announcements. It recovered sharply as tariffs were postponed and the door was left open for negotiations.

In total, the fund lost 4.8% during the quarter, compared with a loss of 1.3% from its MSCI AC World index benchmark. 

Contributors

EssilorLuxottica reported acceleration in its top-line growth during Q4 and suggested potential for margin improvement. Reported sales of 2 million units of the Meta Ray-Ban glasses were ahead of expectations, while it has high hopes for its Nuance smart audio glasses which have a built-in hearing aid to support people with mild to moderate hearing loss. Following strong performance, we took some profits from the company.

Richemont delivered a positive earnings surprise. The company’s idiosyncratic growth drivers mean there is limited correlation between its fundamentals and the fortunes of the wider luxury sector, and this view was borne out in an update at the start of January that confirmed an acceleration in trading, leading to strong share price outperformance. This also benefited another quality play in the sector, Hermès, which has since also reported better-than-expected results.

Towards the end of the period, Lindt and Technogym benefited from their relative resilience to tariffs. Pricing power-wise, both can pass on rising costs to end consumers in their respective markets of premium chocolate and premium fitness equipment.

From a relative point of view, avoiding the Magnificent Seven tech companies made a significant contribution to performance during the period.

Detractors

US sportswear companies Deckers and On Holding have performed poorly on profit-taking after a strong run in 2024 followed by nervousness around their 2025 prospects in the face of tariffs and macro concerns. Deckers increased guidance for top-line growth from 12% to 15%, noting strong demand for its flagship Hoka and Ugg brands. However, this increase was no more than expected, and its shares fell significantly.

On Holding fell in sympathy on market concerns over the performance of smaller brands against a potentially resurgent Nike; however, it has since reported results in March that showed 41% growth in Q4 revenues, with guidance of at least 27% in 2025 – ahead of its mid-term target.

Fundamentals have likely troughed for LVMH. It staged a sequential improvement in Q4 trading versus Q3 and we believe the shares continue to reflect a degree of scepticism about the sustainability of the recovery, opening an attractive valuation opportunity to add to our position.

Activity

We exited our position in menswear retailer Hugo Boss, with a view that the shares’ low valuation is insufficient to compensate for mounting earnings risk following the weak Q1 trading noted in its key US market.

Concerns that excessive pricing had reduced participation levels (and therefore earnings) for longer than expected at Vail Resorts led us to sell our small position.

The proceeds from the Hugo Boss sale were used to fund a new position in China-listed baijiu (white spirits) manufacturer Kweichow Moutai. Moutai dominates the prestige segment in baijiu, with a 94% market share and high barriers to entry that it has cultivated for over 90 years. Its prestige offering Feitian accounts for about 90% of profit and is the main driver of the company’s current gross margin of more than 90%. Direct sales are on track to exceed 60% of liquor revenues by 2026 – offering further upside to already high operating margins.

We added to Deckers, Accor and Moncler on share price weakness.

Outlook

We delayed writing this until we had a clearer view of outcomes following the shock of Liberation Day and the swift and ongoing rollback of tariffs in recent weeks and days. However, we are not much wiser than we were at the start of the month on where the level of tariffs will eventually settle.

Cumulative tariffs of up to 145% on Chinese imports will require brands to significantly reprice upwards and/or Chinese suppliers to take a margin hit to keep doing business. A third option is for brands to raise prices globally rather than just in the US, helping spread the pain more evenly, and we have already seen evidence of companies taking this route. In sectors such as luxury, this has the added advantage of preventing arbitrage from higher- to lower-priced shopping destinations, which can be disruptive to company operations.

Most luxury goods have no China sourcing but are affected by the 10% additional tariff on European imports, which would require cost mitigation for the majority and passthrough for the select few with genuine pricing power. On Q1 results calls, management teams have seemed confident about passing on price increases to mitigate tariffs but have been more cautionary about the US consumer (albeit depending on the company).

Those exposed to the higher end such as Hermès and Brunello Cucinelli continue to see stable trends despite the equity market sell-off, while Kering and even former sector leader LVMH are experiencing difficulties due to the higher proportion of aspirational consumers within their client base.

We are concerned about sporting goods companies due to proposed tariffs on Vietnam of 46% – where, for example, On Holding sources 90% of its product. There are worries that consumers would be unwilling to pay the extra mid-single-digit to high-single-digit increase on On’s $150 trainers to offset the extra cost.

We also think domestic US travel – which has boomed since the end of Covid lockdowns – could be due a slowdown and have been preparing for this by favouring the more internationally exposed Accor as our preferred hotel operator. The company delivered better-than-expected Q1 results and issued a confident outlook for the remainder of the year, noting no slowdown in Q2 to date.

The dynamics of consumer financial health and behaviour are currently extremely nuanced. While overall spending remains stable with a positive outlook in the near term, income disparities, reliance on credit among lower-income households and potential tariff impacts introduce notable vulnerabilities. Continued monitoring of these trends will be critical to gauge the longer-term resilience of the US consumer market amid ongoing economic uncertainties. The ongoing noise from tariff newsflow is starting to present attractive opportunities to both add to the structural winners and share-gainers within the sector on a longer-term view and prune names more at risk from exposure to lower-end discretionary spending or a higher-than-average reliance on the US consumer.