Artemis Global Select Fund update

Source for all information: Artemis as at 31 December 2024, unless otherwise stated. 

The fund’s objective is to grow capital over a five-year period. The Artemis Global Select Fund returned 2.7% in the quarter, underperforming its first benchmark, the MSCI All Country World index¹, which returned 6.0%, and its second benchmark, the Investment Association Global sector² average, which returned 3.4%. 

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

It seemed like a return to business as usual for the US in the fourth quarter of 2024 as Donald Trump’s victory in the presidential election led to a stockmarket rally. We were encouraged to see the gains spread beyond the big technology companies and into more domestically focused sectors such as housing, a theme we expect to continue into 2025.

There wasn’t such good news for other regions, however – the threat of tariffs (a tax on imports) contributed to a fall in the Chinese stockmarket, which had made strong gains in the third quarter after the government announced a package of measures to stimulate economic growth. Ultimately, we believe the threat from tariffs may be overstated and that China has significant scope to surprise going into 2025.

Europe continued to struggle economically and hopes for a near-term recovery look optimistic. Some of its issues may become more problematic in the long term as car manufacturers and some industrial companies face increased competition from China and energy costs remain volatile. A weak political environment doesn't help.

Negatives

Following the departure of its chief executive in October, alcoholic drinks maker Davide Campari reported worse-than-expected Q3 results, mainly due to a combination of one-off problems such as poor weather across Europe. We do not believe these factors affect the company’s long-term prospects.

Third-quarter results for health insurer Elevance's Medicaid business suggest profit expectations for the year ahead are unrealistic. Although its valuation is at a discount to those of its peers, we sold out.

Novo Nordisk released trial results for CagriSema, its next-generation weight-loss drug. These were disappointing, with weight loss not meeting the expected level. Yet we believe the results were not as bad as implied by the fall in its share price and the opportunity in this area is still substantial.

Although Keyence, a provider of factory sensors and related equipment, delivered third-quarter results that were better than those of its competitors, some investors were wary about the strength of demand in this industry. Nevertheless, the business looks in good shape considering its sector is going through a difficult period, while its shares look cheap compared with previous levels.

Not owning car-maker Tesla, semiconductor designer Broadcom or Alphabet (parent company of Google) also harmed our relative performance as shares in these companies rallied and they make up a large part of our benchmark index.

Positives

Amazon performed well after reporting better-than-expected profit margins in its online retail business in the third quarter and issued an upbeat sales forecast for the fourth quarter. It also noted that 80 to 85% of global retail is still conducted via physical stores, meaning growth prospects for the next two decades remain immense.

Fiserv, a provider of financial services technology, released strong results in October, demonstrating consistent profits and growth in its Clover payments system. A Trump presidency is also likely to be positive for small and medium businesses, which constitute a significant part of Fiserv’s customer base.

Taiwan Semiconductor Manufacturing Company (TSMC) released a good set of results showing it continues to benefit from strong demand for semiconductors at attractive profit margins. Yet its shares trade at a significant discount to those of its competitors.

Recent purchase American Express also got off to a strong start.

Purchases

We invested in American Express as we believe that consumers need a good reason to pick one method of payments over another. High-income customers pick Amex because of its brand, reward benefits (funded by partners) and the ‘sunk cost’ of having paid a membership as you would for a service such as Amazon Prime. Meanwhile, card network revenues, membership and absolute spend per card continue to grow³, while counterintuitively, a large increase in card fees as higher rewards kick in appears to be increasing usage⁴.

We believe American Express’s strong network is underappreciated and that profits should also grow more quickly than historical levels.
Another company we bought for the portfolio, Vulcan Materials, is the largest supplier of construction materials in the US. Continued government spending – on projects such as hurricane repair and longer-term infrastructure – and a recovery in non-residential activity should support building activity, while the company is becoming more efficient. We don’t believe either of these is reflected in the price of the shares.

We also bought positions in Wells Fargo and Otis. Having sold out of bank Wells Fargo earlier in 2024, we felt the result of the US election offered enough of a reason to re-invest, as Trump's agenda of deregulation is likely to benefit financial companies.

Otis is known for manufacturing and installing elevators and escalators but makes about 60% of revenues and 90% of profits from servicing these machines. Its share price suggests investors are worried about low sales of new equipment in China. These only account for a few per cent of profits and have already fallen, so are unlikely to have much of an effect in the future. More importantly, we think other investors are underestimating the strength of the recurring revenues coming from its servicing division.

Sales

We trimmed our position in toll-road operator VINCI due to the political risk in France.

A trip to China highlighted ongoing problems in Estée Lauder’s travel retail operations, so we sold out.

We sold airport operator Aena following recent strong performance, and ride-hailing app Uber due to the threat posed to its business model by self-driving ‘robotaxis’.

Outlook

The set-up going into 2025 should give investors reason to cheer, with the uncertainty from the US election now behind us and the incoming Trump administration seen as friendly to stockmarkets. Most central banks appear to be willing to support their economies with interest rate cuts (making it cheaper to borrow money).

Fears of slowing economic growth have overtaken fears of inflation in most regions. Europe looks fragile from this point of view, with the likelihood of tariffs on US imports set to make difficult conditions even worse. We have reduced our overweight (higher-than-average position) here, but remain invested in leading global companies listed in Europe, which are likely to be less negatively affected.

Regarding China, we will be watching for the size and extent of the package of measures introduced by the government to stimulate the economy. The average Chinese household is sitting on much higher savings than it had before the pandemic and has paid off its mortgage and other outstanding debt. Unleashing some of this household spending power is key to more sustainable growth.

Although Trump said tariffs on Chinese imports into the US could be as high as 60%, members of the incoming administration say such a high figure is being used as a negotiating gambit and is likely to be watered down.

It is important to remember that the economy is not the stockmarket. The fundamentals that drive the latter (such as revenue and profit growth) held up well in 2024 and there is reason to believe they can continue in a similar way in 2025.