Artemis High Income: June 2020 update

Joseph Hill | Mon 08 June 2020

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• Alex Ralph is prepared to be flexible by investing across the bond market and by including UK and European shares to find the best income opportunities
• She is a seasoned high-yield bond investor with almost two decades of investment experience
• The fund could be a good choice for a bond portfolio willing to accept more volatility in search of a higher income
• This fund is on our Wealth 50 list of funds chosen by our analysts for their long-term potential

How it fits in a portfolio

This fund is focused on producing a high income mainly by investing in bonds, but it can also invest up to 20% in UK and European shares. A focus on high-yield bonds and shares makes it a little different from most bond funds, though it also makes it a higher-risk option. The fund could be a good option to diversify a conservative bond portfolio, or a more adventurous shares portfolio seeking exposure to other asset classes.

Manager

Alex Ralph is the lead fund manager and we think she’s a talented investor with over 19 years investment experience. We like her flexible investment approach and willingness to change how the fund is invested depending on her views of the wider economy and bond markets. Ed Legget and Paul Casson also contribute to the running of the fund by choosing the UK and European shares that feature. Ralph also co-manages the Artemis Strategic Bond Fund with James Foster.

Process

Alex Ralph looks for companies that make plenty of cash. This should leave them in a comfortable position to service their debts and pay bondholders. She tends to focus on high-yield bonds and aims to keep hold of them until she finds more attractive income opportunities elsewhere. But she is prepared to be flexible and invest in higher-quality bonds and government bonds when she feels it’s time to be more cautious.

Up to 20% of the fund can be invested in shares of UK and European companies. Ed Legget runs the UK portion, while Paul Casson focuses on European shares. This part of the fund could boost both growth and income. Derivatives can also be used in the fund, which can add risk.

The recent economic disruption brought on by coronavirus has caused widespread dividend cuts or cancellations, particularly in the UK. In order to help shelter income paid to investors, the portion invested in UK shares has been lowered and more has been invested in European companies instead. Ralph has also taken the opportunity to add some attractively-valued bonds to the fund, in what she believes are resilient companies. These include bonds in the communications infrastructure company Arqiva, the house builder Miller Homes and the agricultural chemicals company Syngenta.

Please note charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.

Culture

Artemis is home to a good team of bond investors and Ralph is supported by a well-resourced team. Fund managers are required to invest their own money into the funds they manage and this means she succeeds when her investors do. Ralph is also a partner in the Artemis business. We feel these are great incentives for Ralph to continue to strive for good performance.

Cost

The fund has an annual ongoing charge of 0.71%, but through Hargreaves Lansdown you can secure an ongoing saving of 0.155%. This means you’ll pay a net ongoing charge of 0.555%. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

Alex Ralph has a good long-term track record of delivering strong returns for investors. She's done a lot better than the average Strategic Bond fund, and has delivered a good level of income since running this fund. Investments in high-yield bonds and shares can increase volatility though. This means the fund might not hold up quite as well as some other funds in the sector when bond markets go through a tough patch. We think it has the potential to perform well over the long term though, although there are no guarantees.

So far this year, amid the coronavirus-related market volatility, the fund has underperformed its index, falling by 10.7% compared with a fall of 3.4% for the IA £ Strategic Bond peer group*. The fund’s allocation to high-yield bonds hurt performance as they suffered greater falls than more financially-secure companies with higher credit ratings. This is a very short timeframe to compare performance though and please remember past performance isn't a guide to the future. The fund can fall as well as rise in value so investors could get back less than they invest. The fund currently offers a yield of 5.06% although yields are variable and are not a reliable indicator of future income.

*Source: Lipper IM 01/01/2020- 15/05/2020

Past performance is not a guide to the future. Source: Lipper IM to 31/05/2020

More on Artemis High Income, including charges

Artemis High Income Key Investor information