Artemis Corporate Bond: April 2021 fund update

Joseph Hill | Fri 30 April 2021

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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
• The fund features on our Wealth Shortlist of funds chosen by our analysts for their long-term performance 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 if used adds risk. Snowden achieves diversification by owning bonds issued by a range of different companies. There are currently 111 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.

When coronavirus hit markets Snowden rotated 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. In the following weeks and months he also added the newly issued bonds of some other businesses, such as Coca-Cola European Partners, Nestle, Proctor & Gamble and Lloyds to the fund.

Snowden expects to see higher nominal inflation figures in the coming months as pent up consumer demand is released, supportive government policies continue and the base effects of last year's low inflation figures are realised. But despite this he thinks the market is pricing in too much inflation with potential rises in unemployment an area to watch as furlough schemes unwind.

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.

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

Snowden has delivered strong performance over the long term, outperforming the wider corporate bond peer group average. Like all fund managers though, he's had weaker periods too. He endured a tough time during the financial crisis, for instance, but bounced back reasonably well after. Please remember past performance is not a guide to future returns.

The fund's performed strongly since launch in October 2019. The fund's positions in higher quality bonds and a rotation away from bonds issued by companies more exposed to the effects of Covid-19 helped in the initial months after the virus hit. The newly issued bonds Snowden managed to pick up at attractive valuations during the onset of the coronavirus have also gone on to perform well. The margin of outperformance since launch has exceeded Snowden's expectations and he thinks outperformance on this scale shouldn't be expected to continue indefinitely. All investments fall as well as rise in value, so you could get back less than you invest.

Although Snowden is only in his second year working at Artemis, he's a seasoned corporate bond investor with over two decades of experience. His performance navigating bond markets over this time is the reason for our conviction in the manager.

Past performance is not a guide to the future. Source: Lipper IM to 31/03/2021.

*n/a - full year performance data unavailable.

Artemis Corporate Bond factsheet, including charges

Artemis Corporate Bond Key Investor Information