Artemis Corporate Bond: June 2020 fund update
Joseph Hill | Tue 30 June 2020
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- Stephen Snowden is a seasoned corporate bond investor and has over 20 years' experience
- We like the manager's clear, disciplined investment process which we think could drive returns over the long term
- Snowden has delivered strong returns for investors over the long term, outperforming the corporate bond peer group with funds he’s previously managed
- This fund has been added to our Wealth Shortlist of funds chosen by our analysts for their long-term potential
How it fits in a portfolio
The fund aims to generate a combination of income and growth over the long-term and could form part of a diversified bond portfolio, or diversify an equity-focused portfolio. We think the fund could be more volatile than some other bond funds but is a good choice as part of a portfolio invested for the long term.
Manager
Stephen Snowden has been the manager of the fund since joining Artemis to launch it in October 2019. He’s a seasoned corporate bond investor though, having accumulated over 20 years’ experience running similar strategies at Old Mutual and Kames. This means Snowden has navigated the corporate bond market through a range of economic conditions. We think he will use this experience to inform his convictions at Artemis.
Snowden has the support of co-manager Grace Le who also moved across to Artemis from Kames.
Process
The fund’s investment process blends ‘top down’ macro-economic research with ‘bottom up’ fundamental analysis of individual companies’ bonds.
The macro analysis involves building up a picture of where countries are in the economic cycle as well as considering the implications of monetary and fiscal policy for key indicators like inflation and interest rates. This helps Snowden evaluate which sectors and areas of the economy could benefit from any trends or shifts that might be occurring.
This macro-economic research is combined with ‘bottom up’ analysis of bond-issuing companies. This helps Snowden to determine which bonds are attractively priced and offer the most compelling opportunities to generate returns. Snowden also spends time meeting company management to assess both their quality and their strategy for the business. It’s important for him to dig deeper into the company strategy to understand what they’re trying to achieve, its implications and to ensure that it isn’t likely to disadvantage bondholders.
At least 80% of the fund is invested in investment grade bonds (those with a credit rating of BBB or above) that are issued in sterling or hedged back to sterling from other currencies, like the Euro or the Dollar. The fund may also invest in derivatives and high yield bonds which can add risk.
Snowden achieves diversification by owning bonds issued by a range of different companies. There are currently 125 bonds in the fund, but this number can be anywhere between 75 and 150 at any one time. Some of these bonds may be more illiquid than others, which could make them more difficult to sell.
Snowden used the recent coronavirus-induced period of market volatility to make some changes to the fund, rotating out of companies more exposed to the fallout, such as banks, hotels and transportation, and into more defensive businesses, such as those in the utilities and telecoms sectors.
The newly issued bonds of some other businesses, such as Coca-Cola European Partners, Nestle, Proctor & Gamble and Lloyds were also added to the fund. Snowden believes these companies are more likely to be able to offer a predictable stream of income to bond investors going forwards, although there are no guarantees.
Culture
Snowden is a partner at Artemis, and Artemis is a private company. We think this structure is a good thing for investors, as both manager and firm are focused on the long-term and can run funds without the distraction of short-term shareholder demands. Fund managers at Artemis are required to invest their own money into their funds, and this means they succeed when their investors do. Artemis also provides an attractive environment for fund managers, allowing them the freedom to run money how they see fit without imposing a ‘house view’ on them. It’s also a collegiate atmosphere, with managers supporting and challenging each other.
Snowden believes environmental, social and governance (ESG) considerations have become issues investors and companies can’t ignore. And that in the future, companies that encounter issues and perform poorly in these areas are likely to be viewed negatively by more and more investors and as such, have the potential to be value traps – investments that are cheap for a reason.
Cost
The fund is available to HL clients for an ongoing annual fee of 0.35%. This is 0.05% lower than the standard ongoing charge of 0.40%, which we think is great value. 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
Stephen Snowden has delivered strong performance over the long term. Over his career, Snowden has generated a return of 193.0%* across the funds he previously managed compared with a return of 138.5% for the funds IA £ Corporate Bond peer group. His performance suffered during the financial crisis, but he bounced back reasonably well after. Please remember past performance is not a guide to future returns.
Stephen Snowden Career Track Record
Past performance is not a guide to the future. Source: Hargreaves Lansdown to 04/06/2020*
As the Artemis corporate bond fund was launched in October 2019, it’s currently not possible to provide annual performance figures. It’s made a good start though, the funds positions in higher quality bonds and rotation out of some bonds of companies more exposed to the effects of Covid-19 has helped over this very short time period. This is a short fund record, but our conviction lies with the fund manager who has a very long track record. This is a new fund however, and there are no guarantees his previous performance will be replicated. Past performance isn’t a guide to the future. All investments can fall as well as rise in value so you could get back less than you invest.