Artemis Strategic Assets - diversification for an uncertain world

Dominic Rowles | Tue 14 March 2017

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• William Littlewood retains a cautious outlook and the fund is positioned accordingly
• Fund has generally performed well over the past year
• We continue to expect this fund to provide some resilience in tougher market conditions

Our view

In a world littered with political and economic uncertainty, Artemis Strategic Assets offers much needed diversification. The fund aims to harness the growth potential of shares whilst offering some shelter from stock market weakness through exposure to bonds, currencies, commodities and cash; and leaves difficult asset allocation decisions to an expert.

Since launch, the fund has tended to provide some capital shelter when stock markets have fallen, but lag a strongly-rising market. We believe the fund will continue to offer a degree of capital shelter in tough markets while delivering attractive long-term returns.

We continue to rate William Littlewood as a highly capable fund manager and feel the diversification benefits offered by his fund could make it a good addition to a more defensive portfolio, or provide some stability to the core of a wider investment portfolio. The fund remains one of our favourite mixed-asset funds and retains its place on our Wealth 150 list of our favourite funds across the major sectors.

Performance

The fund has a twin objective – to achieve returns greater than the FTSE All Share Index and cash deposits over three year periods.

Since launch in May 2009*, the fund has performed considerably better than cash, but lagged the FTSE All Share. That said, we are encouraged to see the fund deliver a stronger performance against the broader UK market since mid-2016. Please remember past performance is not a guide to future returns.

Past performance is not a guide to the future. Source: *Lipper IM to 28/02/2017

How is the fund positioned?

William Littlewood believes worldwide quantitative easing policies are making national debt levels unsustainable. In his opinion, the debt crisis will end in one of two ways: hyperinflation or default. Hyperinflation erodes the value of fixed interest payments and leads to higher yields (and falling prices) to compensate for higher inflation. In the case of default, the debt goes unpaid as governments are unable to service bondholders. In either case, bond prices fall as they become less attractive.

The fund currently holds ‘short’ positions in Japanese, Italian, French and UK government bonds, which allow the fund to benefit in the event bond prices fall. As bonds have generally performed well since the fund’s launch, these short positions have caused a drag on overall performance. However, this positioning came to fruition in the second half of last year as bond prices fell. William Littlewood believes bond prices still have further to fall, so he has retained these positions.

The manager’s cautious outlook has also led him to reduce exposure to shares, which are generally more volatile compared with other parts of the portfolio. He has focused his attention on areas that offer good value, such as UK small and medium-sized companies, which are higher risk than their larger counterparts, such as life insurer JRP Group. In contrast, he has reduced exposure to the oil & gas sector due to concerns that abundant shale gas could depress energy prices for the longer term.

The manager also makes currency calls to help generate returns. The largest currency exposure is to the Swedish Krona, which William Littlewood expects to perform well as the country brings its quantitative easing programme to an end and returns interest rates to more normal levels. On the other hand, he expects the Euro to weaken as populist political parties threaten to dissolve the European Union. He has therefore positioned the fund to benefit from a devaluation in the Euro.

16.6% of the fund is invested in commodities, predominantly precious metals. Commodities provide diversification to the portfolio and dampen some of the risks associated with excessive global debt and stock market volatility.

The fund can also invest in emerging markets, high-yield bonds and derivatives, all of which add risk.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.