Artemis Strategic Assets: July 2020 fund update

Kate Marshall | Tue 14 July 2020

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• This fund is run by a manager with years of experience of multi-asset investing
• It invests across a range of assets, including global company shares, bonds, commodities and currencies
• It's been a tough year of performance so far, and 'short' positions in bonds have been a drag on returns since the fund's launch
• This fund is not on our Wealth Shortlist. You can find the funds chosen by our analysts for their long-term performance potential here

How it fits in a portfolio

This fund spreads risk by investing in a range of different investments, including shares, bonds, commodities, and cash. It aims to provide some long-term growth, but also experience less ups and downs than the stock market. We think the fund could bring true diversification to an investment portfolio, given its range of investments, and could provide a slightly more conservative element to a portfolio focused on shares. That said, we view it as a more adventurous mixed-asset fund, and don't expect it to hold up as well as others at times.

Manager

William Littlewood is a seasoned investor in the UK's fund management industry. He has run mixed-asset strategies at Artemis since 2005 and set up the Artemis Strategic Assets Fund in 2009. He uses a 'go-anywhere' approach, with the flexibility to invest in a variety of assets and incorporate his strong views of the world economy and its markets. Prior to joining Artemis he worked at Jupiter Asset Management, where he built an impressive record running a UK equity income fund.

Littlewood covers a broad investment universe, so he's been joined by co-manager Kartik Kumar since 2017, though Kumar has provided research and analysis for this fund since 2013. Kumar also currently manages a UK-focused investment trust. We like how the managers work together, bringing different perspectives to the fund. We think they have the experience and skills to deliver good long-term performance, but we currently have greater conviction in other mixed-asset funds.

Process

The overall aim of this fund is to grow investors' capital by more than 3% above the Consumer Price Index (a measure of UK inflation) over the long term. Littlewood and Kumar have lots of flexibility with this fund in order to try to achieve this.

The managers start by forming a view of the world. They assess the prospects of the world's major economies and consider how this might impact different investment assets. They then invest in a range of global shares, bonds, currencies and commodities, which they think will benefit if their views are correct.

A reasonable portion of the fund always tends to be invested in company shares, as this should provide most of the growth. Investments in assets such as gold and cash could then help dampen volatility in more turbulent times for global markets. The managers also use derivatives to take 'short' positions, which means they could benefit if the price of a particular asset falls in value, but it could also work the other way if prices move against them.

The fund has had large short positions in bonds since its launch. This is because the managers think national debt levels are unsustainable, and many economies will eventually end with high rates of inflation, while many companies could default. Inflation erodes the value of fixed interest payments from bonds and leads to higher yields (and falling prices) to compensate for higher inflation. If bond issuers default, the debt goes unpaid. Either way, this could harm bond prices. That's why they've invested in bond 'shorts' which helps them to make money if bond prices fall.

The main bond shorts are currently in Japanese, French, German, UK, Italian and Spanish government bonds.

The managers have the flexibility to invest in smaller companies, emerging markets and high yield bonds. These are higher-risk areas.

Culture

Littlewood is a partner at Artemis, which 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 distractions from short-term shareholder demands.

Artemis provides an attractive environment for fund managers, allowing them the freedom to run money how they best see fit without imposing a ‘house view’ on them. It’s also a collegiate atmosphere, with managers supporting and challenging each other. Fund managers at Artemis are required to invest their own money into their funds, so they benefit when their investors do.

Cost

The fund has an annual ongoing charge of 0.83%, but through HL you can secure an ongoing saving of 0.09%. This means you pay a net ongoing charge of 0.74%. 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

The fund has delivered a reasonable return of 60.4%* since launch in 2009, and it's achieved that with less volatility than the main UK stock market (FTSE All Share). But it's underperformed its benchmark, which has grown 74.0%. The fund was ahead of its benchmark until the start of this year, but 2020 has turned into a tough year so far. Past performance isn't a guide to future returns.

Like most funds that invest in shares, this one was hurt by the impact of Covid-19 and the subsequent global stock market falls, particularly until mid-March. There has since been some recovery, but not yet enough to recuperate losses in the first few months of the year. The fund was also held back by some of its 'shorts' in US shares, as the US has held up better than other markets like the UK.

Short bond positions also haven't helped, and these have generally been a drag on performance since the fund's launch. They could benefit performance if bond markets fall, but on the whole bond prices have continued to rise (and yields fall) over the past decade. Ultimately the managers think investors will be rewarded for their patience and when bond prices fall, but this part of the fund won't help returns when prices rise and there are no guarantees.

Overall it's been a disappointing period of performance so far this year. In addition to the fund's main aim of long-term growth, it also aims to offer some shelter in weaker markets. While this won't happen every time, and we view this as a more adventurous option compared to others with the same aim of sheltering capital, it's still a difficult loss for investors to bear.

Artemis Strategic Assets Performance Since Launch

Past performance is not a guide to the future. Source: Lipper IM to 30/06/2020.

Past performance is not a guide to the future. Source: *Lipper IM to 30/06/2020.

Find out more about Artemis Strategic Assets, including charges

Artemis Strategic Assets Key Investor Information