Artemis Global Income - the battle between ‘value’ and ‘growth’

Heather Ferguson | Mon 21 August 2017

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• The manager is building a solid track record, but we do not currently have high enough conviction in his abilities to add the fund to the Wealth 150+
• Investments in commodity-related and financial companies held back recent returns
• Performance over manager’s tenure has been good, led by strong stock selection

Manager’s outlook

The global outlook remains uncertain, according to Jacob de Tusch-Lec. Economic data is positive – factory activity in the US is at its highest level in three years, which points to solid economic growth, and worldwide unemployment is low, for example – but global central banks are still required to navigate unchartered waters in terms of normalising monetary policy. The manager therefore continues to adapt the fund’s positioning as the economic environment evolves. At present, he expects continued growth in the US and a rise in bond yields, and he is happy to retain a bias to US financial companies as a result. Should growth disappoint, he is ready to add back to the fund’s large defensive businesses, with solid growth prospects and regular dividends.

Performance & portfolio review

We are increasingly impressed with Jacob de Tusch-Lec's strong performance and he is beginning to build a long term track record, having managed the fund for seven years. The fund has returned 160% over his tenure compared with 136.8%* for the FTSE All World Index and 114.3%* for the IA Global Equity Income sector and our analysis suggests considerable value has been added through the manager’s good stock selection. Please remember past performance is not a guide to future returns.

Past performance is not a guide to future returns. Source: Lipper IM * to 31/07/17

Since Jacob de Tusch-Lec’s involvement, the fund’s core has been invested in companies that have tended to perform well when interest rates are low and economic news is bad – typically large, defensive businesses, with solid growth prospects and regular dividends. This has been positive for the fund’s long term performance relative to its benchmark, as this type of company has performed well.

More recently, the manager began to move money away from this area as he felt many businesses that met these criteria were overvalued. As he expects continued improvement in the economic environment, he has instead favoured economically-sensitive businesses that could benefit from rising interest rates, such as financials and commodity-related firms. These companies, which broadly fit within the ‘value’ style of investing, have fallen in and out of favour with other investors over the past 18 months, detracting from returns over the first six months of 2016 and 2017, while adding value over the second half of last year. The fund’s investments in commodity-related companies were the biggest detractor from returns over the most recent period of underperformance. China is growing at a slower rate than the manger expected, which has negatively affected the price of iron ore and copper, to the detriment of the fund’s investments in Kumba Iron Ore, Fortescue Metals, and Lundin Mining.

While the fund’s investments in US banks struggled for much of the past six months, the sector received a boost from the regulator in July. 34 of America’s largest banks are now able to return cash to shareholders in the form of dividends or share buybacks, having re-built their balance sheets following the financial crisis. Investments in Citigroup, Synchrony Financial and Carlyle Group all performed well on the news.

The fund invests in higher-risk emerging markets and the manager has the ability to use derivatives, which also increases 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.