Artemis Global Income Fund update

Source for all information: Artemis as at 30 June 2024, unless otherwise stated. 

The fund’s objective is to grow both income and capital over a five-year period. The fund underperformed the market but outperformed its peers. 

• Over the quarter, the fund returned 2.2%. 
• Over the same period, the benchmark MSCI AC World NR Index showed a 2.8% return.¹ 
• The fund’s second comparator benchmark, IA Global Equity Income NR, showed an average return of 0.7%.²  
• At 18.3%, returns from our portfolio over the year to date remain substantially ahead of those from both the index (up 12.2%) and the peer group (up 7.1%). 

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

The quarter’s biggest positives

Broadcom

Broadcom’s shares built on the gains made in the first quarter with the result they have returned 51% (in sterling terms) over the first half of the year. Its recent acquisition of cloud-computing provider VMWare already looks to have been a shrewd move. Its second-quarter earnings came in above expectations and it raised its revenue guidance for the year by US$1 billion largely on the strength of faster-than-expected adoption of its artificial intelligence (AI) networking chips³.

Kinross Gold

Gold producer Kinross Gold’s share price continued to play catch-up with the rise in the gold price. While the gold price has retreated from the all-time highs it set in late May, unfunded spending by the US government is encouraging investors to seek alternative stores of value to the dollar. We suspect this will provide continued support for the gold price, resulting in a favourable earnings environment for Kinross as well as for Newmont, the fund’s other gold miner.

Mitsubishi Heavy Industries

That Mitsubishi Heavy Industries is a beneficiary of a significant rise in global defence spending is well understood. And while its potential to profit from growing demand for reliable sources of low-carbon energy needed to power AI data centres is less familiar, it is starting to gain the attention of investors.

HSBC, Commerzbank

HSBC and Commerzbank were particularly strong performers over the quarter. HSBC announced another £3 billion of share buybacks while Commerzbank rallied in line with other European banks.

The quarter’s biggest negatives

Ryanair

Ryanair’s share price fell sharply after it lowered guidance for fares over the summer holiday season. We think that, over the longer term, the investment story here remains attractive, given that demand for travel remains resilient and capacity remains constrained relative to its pre-pandemic levels.

Tenaris

Tenaris’ shares fell despite its earnings significantly beating expectations, as the market was disappointed by its guidance. Although we shared that disappointment, a number of factors remain in Tenaris’ favour. It is one of very few Western producers of high-quality steel tubes used by the energy industry. Quality is increasingly important in an industry whose environmental impact is being scrutinised closely: for example, the cost to stakeholders of a pipe rupturing in the sea would be enormous.

Rheinmetall

Defence contractor Rheinmetall was caught up in the sell-off that swept across the European market when the far right made gains in EU elections. This was despite the fact that the company announced two significant orders from the German defence ministry during the quarter. One, for military trucks, was worth €3.5 billion; the other, for ammunition, was worth €8.5 billion – its largest-ever order. As the 90% rise in its share price over the past 12 months suggests, expectations for Rheinmetall have increased significantly. But these latest orders provider a reminder that the grim conflict in Ukraine continues to consume military hardware and ammunition.

Changes to the fund

Broadly speaking, the fund’s positioning did not change over the quarter. It continues to have significant overweight positions in shares of industrial companies (particularly defence stocks) and financials (particularly banks). It still has relatively little invested in the shares of technology companies, which tend not to pay dividends.

Sell BBVA; Buy Banco BPM and Caixabank

We sold the fund’s holding in the shares of Spanish bank BBVA, which had performed well since we invested in it towards the end of 2022. We recycled the capital into two smaller European banks: Banco BPM and Caixabank. In effect, we sold shares in a bank that is looking to acquire one of its peers (BBVA recently made an approach for Sabadell) and shifted into two banks that have the potential to become bid targets.

Buy BNP Paribas, AXA and Vinci

Share prices across the European market fell in the wake of a surge in popularity for the far right. A snap election in France put banks such as BNP Paribas under particular pressure. Vinci’s shares, meanwhile, fell on concerns around what a far-right government led by Marine Le Pen might mean for its toll-road monopoly (nationalisation had been discussed by Le Pen’s National Rally in its 2022 manifesto).

On balance, we viewed the sell-off as a buying opportunity. Our interpretation of the first round of the French election was that National Rally would be unlikely to secure a majority and that the centre would retain more seats than some commentators feared. The second round of voting resulted in a hung parliament, with centre-ground and left-wing parties combining to keep the far right out of power. France now likely faces a long period of political gridlock. The good news is that the threat of radical policies (such as the nationalisation of Vinci) has receded for now.

Buy GE Vernova

GE Vernova is the number-two player in the global market for gas turbines. It also manufactures wind turbines, energy storage and grid solutions and is therefore a beneficiary of long-term growth in demand for clean energy.

Buy Oracle

Oracle is focused on expanding its cloud infrastructure unit, which rents computing power and storage to AI companies such as OpenAI. Despite being a direct beneficiary of the AI spending boom it trades on a more reasonable valuation than many of the market’s favourite AI names.

Outlook

We still believe that we are in a radically different economic and market regime to the one that prevailed prior to the pandemic and that inflation and interest rates will be structurally higher going forward than they were in the decade between 2010 and 2020. Nevertheless, the emergence of some mixed signals on the health of the US economy offers a reminder that there will be times when inflation and interest rates move lower. We do not believe, however, that we are returning to a world of zero rates and deflationary worries.

We have talked about the challenges faced by traditional income-paying sectors of the stockmarket for a number of years. These are companies with predictable and somewhat recession-proof earnings in areas such as consumer staples (food, beverages and tobacco), real estate and pharmaceuticals. However, if a recession is around the corner and interest rates are cut meaningfully, it could be that some of these sectors start to look interesting again given share prices of some of these companies have fallen substantially. This is something we are monitoring closely.