Artemis US Select Fund update

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

Review of the quarter to 30 June 2025

The second quarter of 2025 was marked by an extraordinary divergence between macroeconomic turbulence and market performance. Despite one of the most tumultuous macro environments in recent years, characterised by the introduction of sweeping US tariffs, geopolitical escalation in the Middle East and growing concerns over US fiscal sustainability, global equities delivered strong returns. The S&P 500 climbed 10.8% (in dollar terms), closing the quarter at an all-time high.

It began with a sharp sell-off following the announcement of "reciprocal" tariffs by the US on 2 April. However, markets rebounded strongly after the US administration delayed enforcement for non-retaliating countries and eased China-specific tariffs in May. Investor sentiment was further buoyed by robust US economic data, including April’s jobs report and softer-than-expected inflation.

The US fiscal picture came into sharper focus, as Moody’s downgraded the sovereign credit rating and long-dated Treasury yields edged higher. The 30-year yield closed the quarter at 4.77% as markets digested the potential implications of renewed tax-cut legislation and persistent deficits. Despite these macro headwinds, the resilience of economic activity, combined with the absence of any tariff-induced inflation, provided a supportive backdrop for equities. However, the US dollar saw broad-based weakness, declining 7.0% in Q2 and recording its worst H1 performance since 1973.

At a market level, tech and communication services led the way, with healthcare and energy the only negative sectors in dollar terms. The list of top performers over the period was dominated by names that were in some way connected to AI. We are not seeing a slowdown here – if anything, the competition between the hyperscalers is only intensifying.

At a fund level, it was encouraging to see a strong period of performance following a weaker Q1, with the fund up 10.1% during Q2, compared with 4.4% from its S&P 500 benchmark.

Stock selection drove returns, particularly in technology and industrials, with healthcare the only notable detracting sector.

Performance

Positives

Apple: In a strong market, it was surprising that our biggest contributor to performance was our maximum underweight position, in Apple. We feel it is now being recognised as an expensive low-growth company with significant threats to its moat emerging. We maintain our 5% underweight.

Comfort Systems: We added to the building-and-service provider on weakness caused by DeepSeek and tariffs. Management cited strong demand persisting across tech/data centres, healthcare and semi fab (the factories where semiconductors are made) markets, with no current signs of slowdown in capex or customer activity. The company continues to see robust demand for skilled labour such as electricians, welders and pipefitters, and maintains good visibility into this year and parts of the next two. The pricing environment remains favourable and its scale provides a procurement edge, particularly while tariff uncertainty persists. We trimmed some of our holding on strong performance.

Constellation: Constellation is the largest producer of carbon-free energy in the US, primarily through nuclear power. Over the quarter it announced a 20-year agreement with Meta to provide power from its Clinton Clean Energy Center to support Meta’s data centres in the region. This forms part of a wider theme we are seeing, that clean, always-on energy is in high demand. Nuclear at this stage is the best solution. Having sliced the position after a very strong run, we got the opportunity to add back in during the ‘Liberation Day’ malaise.

Seagate: Seagate produces hard disk drives (HDDs) as well as solid-state drives that are essential to personal computing and storage systems that are key components in data centres and cloud infrastructure. The business is currently experiencing a boom driven by data-centre growth given HDDs are the preferred method of storage. Typically, the industry is highly cyclical in nature with capacity overbuild a common occurrence, but it is taking a more conservative approach today given past experiences.

Micron: Micron primarily produces DRAM and NAND flash memory technologies, which again are experiencing a demand surge due to data centre construction. Revenues associated with data centres have doubled year-on-year. Micron guided well ahead of the market’s consensus estimates at its most recent earnings release.

Negatives

Fiserv: This company operates a payments and financial technology platform, with a large financial services segment and its Clover point-of-sale system the key growth drivers. In Q1, revenue growth slowed, primarily due to anticipated timing factors.

Despite the softer Q1, full-year revenue and EPS (earnings per share) guidance remain unchanged, with management reaffirming confidence in stronger growth in the second half as new products, markets and contracted deals ramp up. Notably, the financial services segment outperformed expectations with strong margin expansion, while Clover continues to gather momentum. Management remains optimistic about accelerating growth as the year progresses, making the sharp stock pullback appear overdone relative to fundamentals.

Thermo Fisher: The life sciences business reduced guidance on greater uncertainty around tariffs. Whilst the catalysts for share price appreciation are largely macro related (including clarity around tariffs and National Institutes of Health funding) we feel we are being paid to wait. The downside is fairly limited even using a very bearish set of assumptions and the upside looks attractive over three years. We hold a small position size.

Church & Dwight: This manufacturer of household and personal care products is best known for its Arm & Hammer brand, which spans a variety of categories including baking soda, toothpaste, laundry detergent and deodorants. The company owns a wide portfolio of other consumer brands as well. The broader sector, home and personal care, experienced weakness, with Pepsi and Procter & Gamble cutting guidance which led to weakness in Church & Dwight. The company reported at the start of May, missing on revenue and cutting guidance. We have since exited the position.

Allstate: The insurer primarily offers property and casualty products, including auto, home and life insurance. Allstate reported in April, showing robust underlying growth despite some higher-than-anticipated catastrophe losses. Its defensive profile likely held it back over the quarter following a Q1 where relative and absolute returns were attractive. We have reduced our position.

Purchases

We made a number of changes over the quarter. We took our Nvidia position back to overweight as our analysis suggests earnings will start to beat consensus estimates as the ramp-up of its new Blackwell chips starts. We also bought Texas Instruments, a maker of analogue chips, where we believe there is a cyclical upturn. Outside of these names, we bought Wells Fargo, AbbVie and TransDigm.

Sales

To fund these purchases, we reduced some of our defensives such as Walmart, Coca-Cola and Allstate. We also sold out of PG&E, the regulated utility.

Outlook

As we look forward, there is much to be optimistic about: robust economic health, an earnings outlook that outpaces international peers and domestic policy initiatives that encourage investment. We will of course be monitoring elements that would pose a risk: rising debt levels are a concern and inflation is expected to creep up as the impact of tariffs is incorporated into pricing. We will therefore monitor how this then feeds into consumer health. But on balance we are leaning towards a ‘glass half-full’ outlook.