Artemis Strategic Bond Fund update

Source for all information: Artemis as at 30 June 2025, unless otherwise stated.

Performance

Fund performance has been strong over the quarter. We beat our IA Strategic Bond peer group average by 0.8 percentage points and were in the top quartile of the sector. 

Credit activity

April was interesting because of the initial lack of dispersion between bonds that were more exposed to the tariff news and those that were more resilient. In this environment, the fund generally rotated away from companies that were both more vulnerable to tariff headlines and had outperformed. We then reinvested these proceeds into companies that had underperformed, despite not being as exposed to tariff news. On the high-yield side, we took the opportunity from the significant sell-off to add to our position in Forvia, a supplier to the autos sector, as well as adding a position in Perenti, an Australian BB-rated contract miner. 
 
In May, investment grade activity remained high. We again focused on trimming holdings that had performed well and adding to those that had unjustifiably underperformed the market rally. Overall, we trimmed exposure to Tier 2 financials, the spreads of which were trading close to their all-time tights, and rotated into more senior financial bonds. We also took advantage of a busy primary market and participated in several new issues. Notably, the fund also initiated a position in Ørsted, which had been a severe laggard not just within the sector, but also on a capital structure and cross-currency basis. 
  
Global high-yield markets rallied further in May as the recovery from April’s tariff-related volatility continued. Our recently acquired position in US footwear giant Foot Locker performed extremely well. We thought tariff-related selling was overdone and bought its bonds in March. In mid-May, Dick’s Sporting Goods (rated investment grade) announced it would buy Foot Locker, leading its bonds to rally some 17 points. We also added a new position in BB-rated Australian crop-protection specialist Nufarm.
 
We increased risk in IHO, which is a holding company related to German Tier 1 auto suppliers such as Schaeffler, by selling 2029 bonds and buying 2031 ones. We also added US housebuilder Dream Finders Homes as it had lagged the recovery. 

On the sales side, we exited or reduced our position in a few names that had rallied, including US payments firm Shift4, UK supermarket supplier Premier Foods, specialty chemicals firm Azelis and Cloud Software.
 
Throughout June, investment grade credit spreads continued to recover their weakness post-Liberation Day. Our activity mainly revolved around switches, largely from bonds where we felt incremental upside was limited into underperformers. These included moving from Nationwide into HSBC, rotating from a shorter to longer (and new issue) from TP ICAP and switching from NatWest Tier 2 and Deutsche Bank senior bonds. On a broader theme, subordinated financials have continued their strong outperformance, particularly on the insurance side, so the fund has been using this strength to reduce holdings in L&G and Rothesay.
 
The global high yield market continued its impressive recovery in June. Index spreads compressed a further 28bps to +313bps as a combination of bouncing macroeconomic and company-specific data helped to increase risk appetite. 
 
In terms of activity, we participated in a few new issues which we funded by reducing some of our cyclical auto exposure (IHO and Forvia), as these bonds had recovered all of April’s declines, as well as cutting names where upside is mathematically limited (Cloud Software and GFL Environmental). The additions were Arqiva, a UK monopoly operator of broadcast and telecom infrastructure, and ammunition and weapons producer Czechoslovak Group (CSG). Elsewhere, we added to high-conviction positions in French/US specialty chemicals producer SNF and added to our holding in North American/Australian building products maker James Hardie.

Rates (government bonds) 

March and April were active from a rates perspective. We switched between European/Swedish rates and US/Canada rates – capturing the significant swings in market sentiment as the German fiscal story broke, followed by the tariff-led flight to quality back into German/European rates in April. 
 
Upon Liberation Day, we were overweight front-end US rates, then added steepening risk in the US. We also significantly increased EU duration – having been underweight coming into the German fiscal story, we began closing this from mid-March, adding further EU rates positions in early April. Canadian rates were the biggest underperformer in April – the fund added here. UK rates performed well in April as expectations of easing continued to build, so we reduced exposure. The fund built a relatively large position in Swedish rates during March. As the tariff crisis broke out, these were the best performing government bonds, so we took profits on the position.
 
In May, we reduced steepening exposure across German and US curves. We still believe that curves can continue to steepen, however March and April brought some sizeable market moves in this direction. The general news in May was around potential debt management office changes in supply/tapering of quantitative tightening programmes/central banks moving towards a 'wait and see' approach. As steepeners are now a consensus position in bond markets, we felt it prudent to reduce exposure here.
 
The second major trade in May was to buy UK rates out of US and European rates. Headline duration was around 5.75 years, but the contribution of sterling duration increased throughout the month, while dollars and the euro declined.
 
The fund reduced duration to 5.5 years in June from around six years in March and April. As markets priced in more rate cuts this year than either the Federal Open Markets Committee or the Monetary Policy Committee had been guiding towards, we felt it was prudent to scale back duration positions. The general theme of 'rangebound but volatile' still holds for us, and the threat of greater government spending not just in the US but elsewhere increases the risk that growth remains too strong/inflation too sticky to justify the pace of cuts currently priced in in 2025. 
 
In terms of individual markets, we added to European and Canadian rates positions and sold the outperforming markets (the UK and US). We continued to add to Treasury Inflation-Protected Securities (TIPS) and expect these bonds to trade better compared with nominal bonds for the rest of the year, as tariff-driven inflation hits the US economy. Steepening exposure was scaled back further and we closed more of our short-duration positions in 30-year rates. We like broad steepening expressions in the fund, but these are primarily focused on two- and 10-year rather than five- and 30-year curve trades.

Outlook

In the past month, markets have begun to price in further cuts to policy rates while economic activity shows broad resilience and fiscal policy becomes more rather than less supportive of growth. While the market always feared that Trump and a second term might mean more unfunded spending, it is other governments that have turned towards greater expenditure and less fiscal discipline. In June, most countries agreed to meet the new NATO 5% spending target. In spite of this, yields have moved lower as markets focused on potential downside risks to labour markets/growth and not the ever-growing government bond supply that this new regime heralds.
 
Against a backdrop of more price-sensitive buyers and the almost bullet-proof nature of risk sentiment favouring equities, we feel something has to give. And while we still believe that lower policy rates will anchor bonds somewhat, longer-dated government yields should face continued upward pressure. A more balanced duration position feels most appropriate heading into the second half of the year. Most crucially, at these levels and based on what’s currently priced for interest rates, we feel that the risks to bond yields are more two-sided than they have been and would look to shorten the duration of the portfolio on a further move lower in yields.
 
On the credit side, we continue to encounter a corporate sector that is cautious, focused on deleveraging and navigating policy volatility. Robust balance sheets among both corporates and households continue to underpin the seemingly confounding strength of demand. In high yield we continue to avoid those areas that will suffer if we are wrong and macro conditions deteriorate meaningfully, notably emerging market high yield and lower-rated CCC credit.