Artemis UK Select Fund update
Ed Legget and Ambrose Faulks, managers of the Artemis UK Select Fund, report on the fund over the quarter to 30 June 2025.
Source for all information: Artemis as at 30 June 2025, unless otherwise stated.
Fund objective
The fund’s objective is to grow capital over a five-year period.
Performance
US President Donald Trump’s tariffs (a tax on imports), which he announced on 2 April, kicked off the second quarter and led to a sharp fall in global stockmarkets and a rise in US government bond yields1 (bond yields have an inverse relationship with prices).
Amid these developments, the US president capitulated, as more pragmatic voices in his administration appeared to take control. Most tariffs were reduced for 90 days before agreements were made, although for some countries the uncertainty is ongoing2.
Stockmarkets quickly recovered their losses3 as many investors appeared to bank on the ‘TACO trade’ (Trump always chickens out). They continued to edge higher through June4, despite elevated uncertainty as direct conflict between Israel and Iran resumed.
Having initially felt investors were too pessimistic about the impact of tariffs, we now feel as though the pendulum of sentiment has swung too far the other way. We remain of the view that tariff costs will ultimately fall on the US consumer.
Here in the UK, the government's botched welfare bill and U-turn on the winter fuel allowance pushed Chancellor Rachel Reeves ever closer to breaching her fiscal rules5. It appears as though it will be difficult to gain approval for spending cuts, while gilt (UK government bond) yields are likely to rise if government borrowing increases. In our view, this suggests further tax rises in the Autumn Budget are now inevitable.
In more bad news for the government, the Office for Budget Responsibility (OBR) downgraded its UK productivity forecasts6, yet there may be a silver lining. If growth does disappoint, we would expect inflationary pressure to ease, allowing the Bank of England to cut interest rates more aggressively. On more than £2trn of debt7, a lower refinancing rate would take some of the pressure off the fiscal rules.
Despite all of this turmoil, the Artemis UK Select Fund made 14.6% during the quarter, compared with 4.4% from its FTSE All-Share Index8 benchmark and 7.5% from its IA UK All Companies9 peer group benchmark.
For full five-year discrete performance, please see the table below. Please remember that past performance is not a guide to the future.
Calendar year performance | 2024 | 2023 | 2022 | 2021 | 2020 |
---|---|---|---|---|---|
Artemis UK Select Fund | 25.3% | 19.1% | -9.8% | 19.0% | 5.7% |
FTSE All-Share TR | 9.5% | 7.9% | 0.3% | 18.3% | -9.8% |
IA UK All Companies NR | 7.9% | 7.2% | -9.3% | 17.1% | -6.3% |
Contributors
Our holdings in the travel & leisure sector did well this quarter, with International Airlines Group (IAG), Jet2, Ryanair, sports betting company Entain and the restaurant and pub group Mitchells & Butlers all among our top-10 relative contributors.
IAG (the holding company for British Airways, Iberia, Aer Lingus and Vueling) posted strong first-quarter results and announced a significant order for long-haul aircraft from both Boeing and Airbus. It also confirmed it would start the second €500m tranche of its €1bn share buyback10.
Jet2’s story is similar: it has a strong balance sheet, is on a low valuation relative to profits and has just announced a £250m share buyback programme11. The weaker dollar provided another tailwind given that it buys fuel, spare parts and planes in the US currency12.
Other strong performers in the second quarter included housebuilder Morgan Sindall, Rolls-Royce, Barclays and St. James’s Place.
Detractors
Not owning BAE Systems detracted from relative performance as its share price rose on the back of positive sentiment towards the defence sector13, although we benefited from this trend through our holding in Rolls-Royce.
We believe BAE Systems is less likely to deliver exceptional profit growth compared with Rolls-Royce as more than half its business is exposed to the US Department of Defense14, which we expect to increase spending by less than in central and eastern Europe.
Among our holdings, sustainable packaging company Smurfit WestRock detracted most from performance during the quarter. It got caught up in fears around weaker paper pricing and cost pressures from tariffs, due to having large exposure to Canada, Mexico and the US15. We believe industry consolidation (through company takeovers) will act as a tailwind for Smurfit Westrock and used the post-tariff weakness to add to our holding.
Activity
Marks & Spencer was our largest addition to the portfolio this quarter. We began buying into the retailer before the mid-April cyber-attacks and continued increasing our exposure afterwards on the back of share price weakness.
We expect the impact of cyber disruption on profits to be material this year due to lost sales, but we are optimistic that the business can regain its momentum.
Elsewhere, we increased our exposure to property companies, which we think will benefit from lower interest rates and improvements to the planning system. We added Bellway and West End REIT (real estate investment trust) Shaftesbury Capital to the portfolio and increased our exposure to Barratt Redrow.
In terms of sales, we took profits from Rolls-Royce and reduced our holding in fund manager Man Group.
Outlook
Across the Atlantic, the passage of the ‘One Big Beautiful Bill Act’ has brought with it extensions to tax cuts, a larger fiscal deficit (when government spending is higher than revenues), higher borrowing costs and in turn a weaker dollar16.
Uncertainty over tariffs persists, which we expect to have a negative impact on global supply chains, end-market demand and global growth, although ultimately we believe US consumers will bear the brunt of the tariffs in the form of higher prices.
By comparison, we perceive the UK as a relative winner within the new economic order. With a trade agreement already signed, those British companies that are affected by tariffs can at last plan their medium-term response.
Tariffs have indirectly led to lower commodity prices and a stronger pound17, two trends we expect to ease inflation pressures on the UK economy, enabling the Bank of England to continue reducing interest rates through the second half of this year.
Additionally, we continue to believe that in a tougher economic environment, strong companies will get stronger, so our portfolio is focused on franchises that are dominant within their sectors, for example, large domestic banks and Whitbread, Tesco and Next.
2https://edition.cnn.com/business/tariffs-trump-timeline-dg
5There are two new non-negotiable fiscal rules. The first is the stability rule which ensures that day to day spending is matched by tax revenues, so the government is only borrowing to invest. The second is the investment rule which requires the government to reduce net financial debt as a share of the economy, keeping debt on a sustainable path while allowing much needed investment to grow the economy. https://www.gov.uk/government/news/charter-for-budget-responsibility-approved-by-parliament
6https://www.theguardian.com/business/2025/jun/15/reeves-obr-revised-forecast-tax-spending-plans-20bn-hole-autumn-budget
7https://www.statista.com/statistics/282647/government-debt-uk/ to 30 June 2025
8FTSE All-Share Index TR: A widely-used indicator of the performance of the UK stockmarket, in which the fund invests. It acts as a ‘comparator benchmark’ against which the fund’s performance can be compared. Management of the fund is not restricted by this benchmark.
9IA UK All Companies NR: A group of other asset managers’ funds that invest in similar asset types as this fund, collated by the Investment Association. Management of the fund is not restricted by this benchmark.
10Buybacks, also known as share repurchases, refer to the reacquisition by a company of its own shares. instead of paying dividends, it is an alternative way for a company to return money to shareholders.
11, 12Jet2 preliminary results 2025
13https://www.proactiveinvestors.co.uk/companies/news/1070264/bae-systems-price-target-boost-as-defence-sector-gains-momentum-1070264.html
15 https://www.reuters.com/markets/europe/box-maker-smurfit-westrocks-us-orders-steadying-after-rocky-six-weeks-2025-05-01/
16https://www.thomsonreuters.com/en-us/posts/corporates/economic-impact-big-beautiful-bill/