Artemis Income quarterly review, December 2023

Adrian Frost, Nick Shenton and Andy Marsh, managers of the Artemis Income Fund, report on the fund over the quarter to 31 December 2023.

Adrian Frost

Source for all information: Artemis as at 31 December 2023, unless otherwise stated.

Fund objective  

The fund aims to grow both income and capital over five years. 

Review of the quarter to 30 September 2023

Despite it being a quarter marred by conflict in the Middle East, the dominant event from many investors’ perspective was that the US central bank, the Federal Reserve, acknowledged that easing inflation would allow it to cut interest rates in 2024.  

Markets responded enthusiastically, sending stockmarket indices in much of the world -– including in the UK – higher. The FTSE All-Share index, which is one of this fund’s two ‘comparator benchmarks’, rose by 3.2% (The FTSE All-Share is a widely used indicator of the performance of the UK stockmarket, in which the fund invests. Management of the fund is not restricted by this benchmark.) 

Performance

Our fund returned 5.4% over the quarter, beating both the FTSE All-Share index and the average fund in the Investment Association’s UK Equity Income sector, which returned 4.3%. (This is the second of two comparator benchmarks against which the fund’s performance can be compared. It is a group of other asset managers’ funds that invest in shares of UK companies. Management of the fund is not restricted by this benchmark.) 

For full five-year discrete performance, please see below. Please remember that past performance is not a guide to the future.

The quarter’s biggest positives…

Private equity group 3i performed extremely well once again, concluding a year in which its shares returned 85%. Its largest holding, European discount retail chain Action, continues to deliver impressive growth. The majority of its products (around two-thirds of its range) are not fixed, providing shoppers with a ‘treasure hunt’ experience familiar to anyone who has visited the middle isles of Aldi or Lidl.

Wolters Kluwer’s shares rose by 12%. We first invested in this business – an ‘information services’ company serving the legal, business, tax, accounting, finance, audit, risk, compliance and healthcare markets – back in 2016. At that time, our judgement was that it was embarking on a similar ‘print-to-digital’ transformation that another of our holdings, RELX (the publisher formerly known as Reed Elsevier) had already begun to navigate.

After a challenging year, shares in IG (online financial trading) bounced back strongly in the final quarter of 2023. An announcement that former CEO June Felix would be succeeded by Breon Corcoran, the former chief executive of Flutter Entertainment, encouraged sentiment to turn. With Flutter having been held in a number of Artemis’ funds over the years, Breon is well known to us and we regard him as a high-quality appointment.

The quarter’s biggest negatives…

Dr Martens issued its third profit warning of 2023, sending its shares 37% lower, making it the biggest negative over the quarter. It continues to make progress in ‘direct-to-consumer’ sales in Europe and Asia, which is a key part of its strategy. At the same time, however, it saw sluggish performance in North America. In a recent meeting, the chief executive outlined initiatives designed to fix these problems, including several personnel changes. Fundamentally, we believe Dr Martens remains a unique footwear brand that resonates with consumers worldwide.

Indivior’s shares fell by 33%. The world is still attempting to understand the implications of ‘GLP-1’ weight-loss treatments. Evidence suggests that GLP-1 drugs suppress food cravings and change drinking and eating behaviours. There are hopes that they might also reduce cravings for opioids, whose misuse Indivior seeks to treat. Enhancing our understanding of GLP-1s (and their significant potential impact across equity markets) is one of our major priorities for 2024.

ITV’s shares fell by 8% amid US strikes in the US film and TV industry. Its management share our frustration over the company’s recent share-price performance and we believe they will take steps to rectify it.

Activity

We reduced our holding in NatWest. Lloyds Banking Group is now the fund’s largest UK bank holding. It has a high-quality management team and has invested sensibly in its technology, enabling better digital engagement with its customers.

We added to GSK and reduced our allocation to AstraZeneca. We have had a number of discussions with GSK in recent months and believe that there are more positive developments taking place here than the market is currently giving it credit for. AstraZeneca’s growth remains impressive, but the valuation disparity between the two stocks is wide. GSK’s shares are significantly less expensive relative to the company’s underlying earnings than those of AstraZeneca.

Outlook

Over the year, the fund delivered performed notably better than its two benchmarks the FTSE All-Share index and its IA peer group. The companies that contributed to those strong returns were distributed across a number of different industries and sectors. This is a deliberate policy; we built a portfolio that is not overly exposed to any single industry, sector or investment style. Top performers in 2023 included:

  • 3i
  • Next
  • Wolters Kluwer
  • Informa and
  • Tesco.

Many of these companies have benefitted from their positions as market incumbents with strong competitive positions.

We are hopeful that a number of forces could continue to support returns from the UK stockmarket from here.

  • Inflation continues to fall.
  • The UK economy has shown its resilience to higher interest rates.
  • International investors are appearing on the shareholder registers of UK-listed companies. We suspect they are starting to recognise that companies listed in the UK are often cheaper than their overseas peers.

We would not be surprised to see an increase in the number of UK companies receiving takeover bids in 2024. The valuation disparity between UK and US companies of similar quality is simply too large. A takeover bid for a high-profile UK company may have greater potential to re-ignite interest in the UK stockmarket than any single positive economic data reading.

Discrete performance 12 months to 31 December 2023 2022 2021 2020 2019
Artemis Income Fund, class I distribution GBP 9.8% 0.4% 16.2% -6.7% 23.0%
FTSE All-Share TR 7.9% 0.3% 18.3% -9.8% 19.2%
IA UK Equity Income NR 7.0% -2.0% 18.4% -10.8% 19.9%
Past performance is not a guide to the future. Source: Artemis/Lipper Limited, class I distribution units to 31 December 2023. Data prior to 7 March 2008 reflects class R distribution GBP. All figures show total returns with dividends and/or income reinvested, net of all charges. 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. Our benchmark index is the FTSE All-Share.

Risks specific to this fund

Market volatility risk: The value of the fund and any income from it can fall or rise because of movements in stockmarkets, currencies and interest rates, each of which can move irrationally and be affected unpredictably by diverse factors, including political and economic events.

Currency risk: The fund’s assets may be priced in currencies other than the fund base currency. Changes in currency exchange rates can therefore affect the fund's value.

Income risk: The payment of income and its level is not guaranteed.

Charges from capital risk: Where charges are taken wholly or partly out of a fund's capital, distributable income may be increased at the expense of capital, which may constrain or erode capital growth. 

THIS IS A MARKETING COMMUNICATION. BEFORE MAKING ANY FINAL INVESTMENT DECISIONS, 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.

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 

 


Adrian Frost

Manages:

UK equity income strategy

Adrian co-manages Artemis’ UK equity income strategies.

View Profile

Nick Shenton

Manages:

UK equity income strategy

Nick manages income mandates alongside Adrian Frost and Andy Marsh.

View Profile

Andy Marsh

Manages:

UK equity income strategy

Andy works alongside Adrian Frost and Nick Shenton as part of Artemis’ income team.

View Profile

Investment in a fund concerns the acquisition of units/shares in the fund and not in the underlying assets of the fund.

Reference to specific shares or companies should not be taken as advice or a recommendation to invest in them.

For information on sustainability-related aspects of a fund, visit the relevant fund page on this website.

For information about Artemis’ fund structures and registration status, visit artemisfunds.com/fund-structures

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 statements are based on Artemis’ current opinions and are subject to change without notice. They are not intended to provide investment advice and should not be construed as a recommendation.

Third parties (including FTSE and Morningstar) whose data may be included in this document do not accept any liability for errors or omissions. For information, visit artemisfunds.com/third-party-data.

Important information
The intention of Artemis’ ‘investment insights’ articles is to present objective news, information, data and guidance on finance topics drawn from a diverse collection of sources. Content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security or investment by Artemis or any third-party. Potential investors should consider the need for independent financial advice. Any research or analysis has been procured by Artemis for its own use and may be acted on in that connection. The contents of articles are based on sources of information believed to be reliable; however, save to the extent required by applicable law or regulations, no guarantee, warranty or representation is given as to its accuracy or completeness. Any forward-looking statements are based on Artemis’ current opinions, expectations and projections. Articles are provided to you only incidentally, and any opinions expressed are subject to change without notice. The source for all data is Artemis, unless stated otherwise. The value of an investment, and any income from it, can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested.