Artemis UK Future Leaders plc update

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

Trust objective 

The trust aims to achieve long-term total returns for shareholders primarily by actively investing in a broad cross section of small- to medium-sized UK quoted companies.

Performance

The quarter was characterised by a global and UK stockmarket rebound¹ from the tariff-related uncertainty that peaked in early April.

While the threat of tariffs hasn't gone away, we remain of the view that UK small caps (smaller companies) are relatively well positioned:

• More than 60% of the fund's revenues are earned in the UK;

• UK exports of goods to the US are ‘only’ £60bn² (small in the context of the economy); and

• A weaker dollar and lower energy prices will help to bring down UK inflation3, thereby enabling the gradual reduction in interest rates to continue.

During the quarter, Artemis UK Future Leaders’ NAV rose by 16.1%, compared with a 13.6% return from its benchmark, the Deutsche Numis Smaller Companies plus AIM (-InvTrust) index⁴.

For the past five calendar years of performance, please see the table below.
Please remember that past performance is not a guide to the future. 

Positives

The defence companies in our portfolio made a powerful contribution to performance, with holdings in Avon, Chemring and others associated with the sector rising strongly.

Our overweight (above-average position) in consumer discretionary (non-essential goods and services) was another positive, with retailer Dunelm announcing robust third-quarter sales in a trading update5 and JD Wetherspoon also doing well6.

Two major drivers of recent performance continued at pace during the quarter. The first of these is buybacks⁷: over the first half of the year, a record 21 holdings reduced their share count by more than 0.5%. We see this as indicative of management teams expressing the view that:

a) Their businesses have surplus capital;

b) They are confident in the outlook; and

c) Their share prices do not reflect the fundamental value of the business.

The second is M&A (merger & acquisition) activity, with UK pawnbroker H&T receiving a recommended offer by US-listed trade buyer FirstCash at a 44% premium to its share price⁸.

GB Group, a provider of identify-verification and fraud prevention services, was the biggest detractor from performance. Full-year results were in line with expectations, but some analysts cut profit forecasts for next year (in large part due to currency movements)⁹. We are still positive on GB Group's medium-term prospects and felt the share price reaction was overdone. We added to our holding.

Victorian Plumbing also performed poorly after cutting profit forecasts: the company is yet to see an improvement in the market backdrop and management has invested in the MFI brand to enter the UK homewares market¹⁰. We added to our holding: in our view, the investment in MFI represents a low-cost way of entering a new large market and can be curtailed quickly if it is not successful. 

Translation services provider RWS announced another negative update. It downgraded profits-before-tax due to several issues including challenges with two new customers, weakness in its life sciences division and the impact of currency movements¹¹. The shares look cheap, there are no balance-sheet issues and the incoming chief executive just bought 1 million shares¹². However, we think RWS has a lot of work to do to regain investors' confidence.

There is a lot going on at marketing consultant Next15, whose chief executive has stepped down after more than 30 years¹³. The business has uncovered ‘potential serious misconduct’ at its Mach49 division which led it to self-report to law-enforcement agencies and terminate the employment of three senior members of the management team¹⁴. Deferred consideration (bonuses) of up to $91m may now not be payable¹⁵. Weak trading in this part of the business, negative currency movements and investment costs will all contribute to "materially lower" profits¹⁶. There was a subsequent announcement that Next15 is in talks to sell a number of brands¹⁷. The valuation is compelling and the balance sheet looks satisfactory but there are a lot of moving parts.