Artemis Global Income: November 2020 fund update

Kate Marshall | Mon 30 November 2020

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• This fund could be a useful diversifier to more ‘plain vanilla’ global income funds
• Jacob de Tusch-Lec is a bold investor and invests differently from many others
• The fund’s delivered a decent income in a sector where it's been hard to come by, though performance has struggled in recent years
• The fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

This fund aims to provide a healthy, steadily growing income coupled with some long-term capital growth. The fund’s mix of different companies and value-focused approach means it often performs quite differently than many others in the Global Equity Income sector, and has struggled in recent years though the income has held up. It could work well with more growth-focused funds, be used to add some international exposure to UK-centric portfolios, or as a way to diversify a broader income investment portfolio.

Manager

Jacob de Tusch-Lec isn't a conventional global equity income manager. As a natural contrarian he’s prepared to invest in areas others avoid, including less popular companies, as well as higher-risk smaller companies and emerging markets. It takes courage to invest against the crowd, especially during times when this approach is out of favour. De Tusch-Lec’s stayed true to his philosophy during tougher periods but he will also be flexible and tweak and adapt how he invests depending on market conditions.

De Tusch-Lec began managing funds in 2005, but his first foray investing in global equity income began with this fund, which he’s run since launch in July 2010. That means he’s built up more experience than most other global income managers.

He’s supported by co-manager James Davidson, who joined Artemis at the end of 2018. Davidson has two decades of investment experience and worked with de Tusch-Lec at a previous company. This means he shares some of the same investment traits, but he is also willing to take a different view. While both managers consider ideas for the whole portfolio, de Tusch-Lec often focuses more on slightly riskier or out-of-favour companies, while Davidson often looks for core dividend-paying companies that may provide some more stability and balance to the portfolio.

The managers are in full control of the fund, but they also draw on the research and support of other teams at Artemis, including those focused on global, US and European companies. We like the challenge and support gained by working as a duo, and with the other teams too.

Sam Morley was previously a co-manager on the fund, though he recently stepped down and left Artemis. While we liked the setup of the three managers, which is similar to other funds at Artemis, we don't think his departure will have a significant impact on the fund. De Tusch-Lec has always been the fund's lead manager and, importantly, he continues to make the key investment decisions. The remaining two managers can also gain support from other overseas equity analysts and portfolio managers, who have increased in number across Artemis over the years.

Process

The managers scour the globe for companies they think can earn plenty of cash that can be used to pay dividends. They look beyond the usual names that make up many global income portfolios, and often invest in out-of-favour companies at attractive prices (known as value investing), those that are more sensitive to the health of the economy and those lower down the size spectrum.

De Tusch-Lec combines his company selection with a view on where the global economy is headed, and will tilt the portfolio according to his outlook. This so-called ‘top down’ approach is difficult to do. Economies can be unpredictable, so he admits he won’t always get his forecasts or his timing right.

The manager has recently added to cyclical companies – those that tend to be more sensitive to the health of the economy. New additions include Deutsche Post, the world's largest courier company based in Germany, and BlackRock, the US-based investment company providing services across the globe. Other new investments that are expected to provide a more stable income include drinks company Coca-Cola.

On the other hand, exposure to the financials sector, including banks, has been reduced. Interest rates are likely to remain lower for longer, while both public and private debts are increasing, which could hamper the banks' ability to grow profits.

The fund offers plenty of diversification, and no single company or sector makes up too much of the fund. Although they don’t currently feature in the fund, the manager can invest in high-yield bonds and derivatives, both of which add risk.

Culture

De Tusch-Lec 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 distractions from short-term shareholder demands. Artemis also 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.

De Tusch-Lec is co-manager of another income fund but, given his portion of the fund is run in a similar fashion, we feel this is a manageable workload for him. The manager is gradually taking ESG (Environmental, Social and Governance) issues into account more when analysing companies. He and Davidson, along with the wider team, engage with companies on sustainability issues and vote on key issues. That said, they will sometimes still invest in companies that are not traditionally seen as scoring highly on ESG matters, as many of these tend to pay higher dividends to shareholders.

Cost

The fund is available for an annual ongoing fund charge of 0.58%. It’s usually priced at 0.85%, but there is a 0.27% saving for HL clients. This lower charge is one of the lowest among IA Global Equity Income sector funds. The HL annual platform charge of up to 0.45% also applies.

Performance

The fund has performed better than the IA Global Equity Income sector since launch in July 2010. Over this time it's grown 154.1%* compared with 130.0% for the sector. Please remember past performance isn't a guide to the future, and performance has been volatile at times.

The fund has fallen behind in recent years though and, in particular, it's been a tougher time from 2018-20. The value investing style has been out-of-favour with the market, which has instead rewarded companies with strong growth prospects. Sectors such as technology have been particularly in favour, but most global income funds don't invest much in this part of the market because of the lack of dividends these companies pay.

Although this trend has gone on for several years, it’s important to remember investment styles go in and out of favour. History shows value investing can work well over the long term. We think most broader investment portfolios should have exposure to a range of geographies, asset classes, and styles of investing.

More recently and following the worst of the coronavirus-induced market volatility in March, the fund has performed well against the sector. The manager puts this down partly to some of the balance that's been brought into the fund, including some exposure to core income names. This is over a short timeframe though, and this doesn’t necessarily mean the fund will continue to perform this way.

Our analysis shows the fund is a more volatile option in the sector. It has tended to perform better than its peers in rising markets, but not as well when they have fallen.

The fund currently yields 3.55%, though yields are not a reliable indicator of future income as they can vary and income isn’t guaranteed. The fund’s charges are taken from capital, which can increase income but reduce the potential for capital growth over time. The fund can fall as well as rise in value so investors could get back less than they invest.

Past performance is not a guide to the future. Source: *Lipper IM to 31/10/2020.

Find out more about Artemis Global Income including charges

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