This means that their assessment of financial materiality – including that of ESG issues – may differ due to factors including investment approach, geographical focus, holding period, portfolio positioning and construction, and risk tolerance.
While this independence of thought is the basis of our approach, there are some overarching views on how ESG issues are integrated where this forms part of the investment process:
- We believe that the integration of material ESG factors into our investment process will enhance returns for clients over the long term
- We assess material risks from both a sector and company-specific perspective
- We use this risk assessment to inform investment decision-making and prioritise engagement with our investee companies
- We use company meetings as an opportunity to discuss the most material risks with companies’ executive board members as well as periodic stand-alone meetings with dedicated sustainability managers and non-executive directors when appropriate
- We document investment analysis and company engagement and share these with the wider Artemis investment teams
- We can explain how factors which can be material such as companies’ environmental performance and governance processes are integrated into our investment decisions
How we integrate ESG into our individual investment portfolios
This table provides an overview of our funds, their approach to investment and an introduction to how each investment team integrates ESG. Links to individual funds provide further detail.
UK equities | European equities | US equities | Global equities | SmartGARP | Fixed income | Multi-asset
Visit our glossary for an explanation of investment terms
UK equities
Overall investment approach
How we integrate ESG
We look for companies that can sustain and grow attractive cashflows, constructing a portfolio of diversified cashflows, not overly exposed to any one industry. Whilst the dividends are an important component of return, we seek total return.
We run a concentrated portfolio and capital is allocated according to risk/reward and conviction.
ESG considerations are increasingly important in sustaining long-term cash flows, and our approach is founded on the belief that good or improving ESG characteristics can lead to a better financial outcome, a lower cost of capital and long-term value creation.
Companies that are aware of their wider stakeholder responsibilities – to their employees, the environment and society as a whole – are more likely to be able to generate attractive cashflows over the longer term.
We are long-term stewards of client capital with a current average holding period of over six years. Regular meetings with companies are an important part of our investment process. We engage with companies when there are material issues to discuss.
A ‘best ideas’ strategy, we target long-term capital growth by investing in a focused portfolio of 40 to 60 stocks, without regard for benchmark composition.
Our largest holdings are those in which managers have the highest levels of belief and where there is a strong positive alignment between the stock-specific investment thesis and the manager’s macroeconomic views.
We believe the benefit of ESG integration is to provide additional insight into the balance of risk/reward and hence impact on the share price.
We use external data to inform our analysis and external analysis to challenge our thinking. Not every stock will be ideal from an ESG perspective at purchase, but then should have scope for meaningful improvement. This leads to stable or improving cash flows and sentiment (multiple expansion).
We do engage where needed as this is a key component for improving company performance.
This strategy aims to harness the superior growth potential of smaller companies, applying a disciplined bottom-up investment process focused on enduring, undervalued free cashflow.
Detailed financial research and company meetings identify between 60 and 90 growing businesses that the managers believe will produce excellent risk-adjusted returns over the longer term.
An assessment of the materiality of ESG factors on investment performance is our first step in our ESG integration process. Guided by the SASB framework, we then identify key ESG metrics for companies in the portfolio and track disclosure and the trend of these over time.
Disclosures by companies in the universe can often be poor, so this is an area we often engage on, and monitor through our internal ESG monitoring list for all stocks in the portfolio.
Companies are rated on a traffic light scale (Red/Amber/Green) for ESG risks and opportunities, as well as receiving a summary rating. This process has highlighted opportunities for engagement.
This strategy aims to achieve superior long-term growth by looking for unrecognised opportunities.
‘Special situations’ are companies that are in recovery, need re-financing or have been overlooked. They often have the potential to deliver significant capital growth.
We subscribe to several specialist external research and data providers to help inform and highlight risks.
We consider responsible stewardship a key investment consideration with improvement in governance, environmental and social factors often being integral to the financial rehabilitation of companies we invest in and expect to see a roadmap for overall improvement where material.
European equities
Overall investment approach
How we integrate ESG
This is a fundamental European equities strategy primarily focusing on businesses with competitive advantages, with opportunistic investments in turnaround, capital-cycle and macro-led situations.
The portfolio is concentrated with an investment philosophy which is long-term and returns-focused.
The fund integrates ESG factors alongside analysis of other factors such as change, structural obsolescence, cyclicality, excessive leverage, poor capital allocation and misestimation of value.
We aim to assess the positive or negative impact of ESG factors on a stock’s prospective risk-adjusted returns, but, importantly, we evaluate risk on a spectrum and not in binary terms. In cases where negative externalities are identified, this will, all else being equal, require a higher rate of return to justify investment. In many cases, because of the difficulty in prospectively assessing risk, sectors and companies may be avoided altogether.
We regularly engage with the directors of a company, when possible, to aid our assessment of return and risk factors. This helps build the investment case and challenge areas where we need more clarity.
US equities
Overall investment approach
How we integrate ESG
US Select is a ‘best ideas’ US equities strategy investing in a relatively concentrated, high-conviction portfolio.
US Smaller Companies is a similar strategy, focusing on stocks with a market cap of under $10 billion.
ESG factors are considered as part of our ‘up/down’ investment process. Key to stock selection is that a risk is only worth taking if the potential reward from owning a stock significantly exceeds the potential loss.
The team structure and specialism means that ESG factors are analysed on an industry- and company-specific basis. Inputs include a range of ESG metrics, analysis and assessments from external research providers.
The US Extended Alpha Fund is an equity ‘long/short’ fund.
ESG factors are considered as part of our ‘up/down’ investment process. Key to stock selection is that a risk is only worth taking if the potential reward from owning a stock significantly exceeds the potential loss.
The team structure and specialism means that ESG factors are analysed on an industry- and company-specific basis. Inputs include a range of ESG metrics, analysis and assessments from external research providers.
Global equities
Overall investment approach
How we integrate ESG
This strategy pursues long-term capital growth through investing in high-quality stocks.
Companies are selected using an investment process focused on investing in resilient businesses that are best-placed to benefit from diversified long-term structural growth trends. The managers favour companies with strong market positions, excellent finances and the ability to maintain pricing power over time. In seeking to fully benefit from this, the managers invest for the long run.
This strategy has several exclusions in relation to tobacco, weapons, arctic oil and gas, oil sands, thermal coal and companies determined to be in breach of the United Nations Global Compact (UNGC) principles on human rights, labour rights, the environment and anti-corruption.
This process involves a range of inputs including ESG metrics, analysis and assessments from external research providers, and our own due diligence, experience and company knowledge.
This strategy looks for underlying brand strength creating not only strong barriers to entry but also giving pricing power to the companies that own them. This results in high profit margins, which should allow investors to benefit from the effect of compound earnings growth over the long term.
SFDR Article 8: This strategy has several exclusions in relation to tobacco, gambling, weapons, coal, oil and gas, and companies determined to be in breach of the United Nations Global Compact (UNGC) principles on human rights, labour rights, the environment and anti-corruption.
Leading consumer brands are often seeking to create leading sustainability practices – be it through the adoption of innovative materials, engaging in regenerative sourcing and above all, responding to a growing consumer mindset of ‘buy less, buy better’.
The team looks for brands increasingly prioritising value over volume, whose consumption is considered, rather than casual. Brands which prioritise craftsmanship and supply chain transparency typically also have above-normal pricing power – their attention to sustainability being rewarded through margins, and in turn share price performance, that exceeds those of their peers.
ESG metrics and analysis which input into the process therefore include considerations such as supply chain management, employment practices, carbon intensity, carbon transition plans, culture, leadership, remuneration and shareholder rights.
This strategy invests in companies worldwide that we believe can generate a high level of free cashflow and cash returns.
We combine bottom-up stock analysis with strong macroeconomic and style views, to better understand potential risks and rewards.
We aim to build a differentiated, contrarian portfolio using a multi-cap approach which is diversified across core income, dividend growth and higher risk special situation investments.
Income investing is inherently biased to mature, profitable companies. We therefore consider ESG to be a factor that determines a company’s ability to support its free cashflow and dividends over the medium term.
ESG risks and opportunities that we believe to be over- or under-estimated by the market are another source of mispricing that we can exploit.
Our investment approach tends to be contrarian in nature and valuation sensitive. This often precludes us from investing in ESG leaders, but we try to avoid companies with poor ESG credentials as these companies can often be value traps. We have, however, found that ESG improvement can be a powerful driver of re-rating.
This strategy seeks leading global equity performance by investing in innovative companies which create positive change.
This strategy has several exclusions in relation to alcohol, tobacco, weapons, nuclear power, gambling, animal testing, adult entertainment, genetic modification, fossil fuels and companies determined to be in breach of the United Nations Global Compact (UNGC) principles on human rights, labour rights, the environment and anti-corruption.
We believe that ESG is more than simply a risk to be managed; we seek to invest in companies whose products and services make a positive impact and provide them with a sustainable competitive advantage. To do this, we consider the sustainability of a company’s products (the ‘what’) and its practices (the ‘how’).
In Q1 2024, the investment team that managed the portfolios and funds in this strategy since its launch left the firm and Artemis’ Head of Impact Equities assumed lead management responsibility. As a result, a review of the investment process is underway.
SmartGARP®
Overall investment approach
How we integrate ESG
SmartGARP
- SmartGARP European Equity
- SmartGARP Global Emerging Markets Equity
- SmartGARP Global Equity
- SmartGARP UK Equity
SmartGARP is a proprietary systematic, quantitative framework used across a specific range of equity funds that aggregates a number of bottom-up and top-down inputs using growth at the right price (GARP), behavioural insights and market signals.
ESG is one of eight factors considered by the SmartGARP framework alongside other bottom-up and top-down inputs such as macroeconomic and investor positioning information.
SmartGARP’s ESG factor has two subcomponents, one capturing companies’ carbon footprint and the other focusing more generally on the strength of their ESG newsflow.
Meeting company management does not form part of the SmartGARP process although the strategy does aim to vote all its stock.
Fixed income
Overall investment approach
How we integrate ESG
The strategy invests predominantly in sterling investment-grade bonds, with scope for other currencies. We focus on where the corporate bond market may be mispriced, seeking value across the market.
When considering individual issuers, the consideration of materiality and trajectory of ESG risks/opportunities is undertaken with the ultimate aim of positively contributing to portfolio performance. We utilise the expertise of Artemis’ wider fixed income and equity teams.
Global High Yield Bond
- Artemis Funds (Lux) – Global High Yield Bond
- Artemis Funds (Lux) – Short-Dated Global High Yield Bond
These strategies select high-yield bonds, those with greater yields than government or investment grade corporate bonds. No single region or currency predominates – we adopt a global approach.
The short-dated strategy restricts itself to bonds that are close to maturity. It’s target duration (exposure to interest rate risk) is 0-2 years.
SFDR Article 8: These strategies have several exclusions in relation to tobacco, nuclear power, weapons, thermal coal, oil sands and companies determined to be in breach of the United Nations Global Compact (UNGC) principles on human rights, labour rights, the environment and anti-corruption.
We do not believe a standardised or fully automated approach to ESG analysis results in effective management of ESG risks within a high-yield portfolio.
This is due to the often-superficial nature of external research itself, as well as incomplete coverage of the high-yield market by external ESG ratings services. We utilise the expertise of Artemis’ wider fixed income and equity teams.
We select a number of bonds, predominantly high-yield rated, alongside equities.
Our criteria is for high income and capital growth, before fees, that is, equal or above average yield of the Investment Association’s Strategic Bond sector.
In seeking higher yields, we look for bonds with a lower credit rating and through analysis finding the right balance between risk and reward.
This strategy is managed jointly by our UK Select and High Yield investment teams and therefore draws on the ESG integration processes of these strategies.
Following an unconstrained approach, this strategy aims to hold the right bonds for each stage of the economic cycle and selects from investment-grade credit, high yield credit and government bonds.
We choose resilient business models which support sustainable free cash flow generation to meet debt service obligations over the long term.
When considering individual issuers, the consideration of materiality and trajectory of ESG risks/opportunities is undertaken with the ultimate aim of positively contributing to portfolio performance.
We utilise the expertise of Artemis’ wider fixed income and equity teams.
This strategy aims to generate capital gains from long and short allocations across fixed income using physical bonds and derivatives.
Our portfolio selects mainly developed-market government and investment-grade bonds. We may also invest up to 40% in a combination of high-yield and emerging market bonds.
The consideration of materiality and trajectory of ESG risks/opportunities is undertaken with the ultimate aim to positively contribute to portfolio performance.
We utilise the expertise of Artemis’ wider fixed income and equity teams.
Multi-asset
Overall investment approach
How we integrate ESG
Our goal is to generate monthly income, combined with capital growth over a five-year period and typically holds 50% bonds and 50% equities.
Blending offers some of the capital and income growth potential of equities, along with the greater predictability of bonds.
This strategy is managed jointly by our Global Income and High Yield investment teams and therefore draws on the ESG integration processes of these strategies.
The investment approach is to grow capital by more than 3% above the Consumer Price Index (CPI) per year (after fees) over a five-year period.
The strategy looks to gain exposure to a broad number of asset classes via indices across equities, bonds, commodities, and currencies where suitable via ETFs or futures and options. The focus is less on individual securities or stocks/shares and more on index driven exposure.
This strategy does not integrate ESG into its investment process.
This is a marketing communication. Before making any final investment decisions, and to understand the investment risks involved, refer to the fund prospectus, available in English, and KIID/KID, available in English and in your local language depending on local country registration, from www.artemisfunds.com or www.fundinfo.com.
CAPITAL AT RISK. All financial investments involve taking risk and the value of your investment may go down as well as up. This means your investment is not guaranteed and you may not get back as much as you put in. Any income from the investment is also likely to vary and cannot be guaranteed.
Investment in the funds mentioned concerns the acquisition of units/shares in the funds and not in the underlying assets of the funds.
For further information on the structure of the funds mentioned, visit www.artemisfunds.com/fund-structures.
Artemis does not provide investment advice on the advantages or suitability of its products and no information provided should be viewed in this way. Artemis only provides information about its own products and services and does not advise investors. Should you be unsure about the suitability of an investment, you should consult a suitably qualified professional adviser.
Any research and analysis in this communication has been obtained by Artemis for its own use. Although this communication is based on sources of information that Artemis believes to be reliable, no guarantee is given as to its accuracy or completeness.
Any forward-looking statements are based on Artemis’ current expectations and projections and are subject to change without notice.
Visit www.artemisfunds.com/glossary for an explanation of investment terms.
Issued by: in the UK, Artemis Fund Managers Limited and Artemis Investment Management LLP, which are authorised and regulated by the Financial Conduct Authority; in Germany, AI Management (Europe) GmbH; in Switzerland, Artemis Investment Services (Switzerland) GmbH.