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Artemis Strategic Bond Fund

All data as at 31 January 2017 except where specified
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The fund’s aims

The fund seeks to achieve a combination of income and capital growth by investing predominantly in fixed income markets.

Current prices and yield
(class I)

As at noon, 24 February 2017
Bid price (quarterly acc units)94.43p
Bid price (quarterly dist units)85.43p
Offer price (quarterly acc units)96.16p
Offer price (quarterly dist units)87.00p
Distribution yield (as at 31 Jan 17)4.2%

Investment information
(class I)

Minimum lump sum investment£250,000
Ongoing charge (quarterly acc units)0.58%
Ongoing charge (quarterly dist units)0.58%

The initial charge is currently waived. The ongoing charge includes the annual management charge of 0.5% and is shown as at the date of the Key Investor Information Document (KIID), where a full explanation of the fund's charges can be found.

Fund managers’ update

Government bonds
The Trump presidency created a lot of volatility as the focus of his policies appears to be on symbolic measures and protectionism, rather than economic reform. Bond yields generally increased, with peripheral Europe underperforming the most. UK gilts only rose marginally.

We anticipate US interest rates will rise throughout the year, pushing their yields even higher.

Investment grade bonds (rated BBB and above)
It was a busy month for issuance, especially in the US. Bank bonds outperformed in the environment of higher government yields.

High yield (rated below BBB)
Strong growth numbers out of Europe and the US boosted sentiment. Supply was not as plentiful as expected because the loan market was also open. This acts as an alternative source of funding for many companies.

Activity
January was a busy month. We began by shortening the fund’s duration (which is to say reducing its sensitivity to rising interest rates) by selling futures. We also sold out of AXA bonds given the risk (admittedly not until 2018) of their not being called. We purchased new issues from TalkTalk and Close Brothers, bought bonds issued by KBC Bank and reduced our exposure to XPO.

Outlook
As inflation increases, economic growth improves and expectations for interest rates move higher, government bonds are under pressure. We anticipate US interest rates will rise throughout the year, pushing their yields even higher. Yields on investment-grade bonds will increase with them. The central banks’ credit buying programmes are likely to be scaled back as the year progresses. These have distorted the market and we think it will underperform when they stop.

On the other hand, bonds issued by financial companies are not part of these asset-purchase programmes. They have lagged as a result, but have recently started catching up. We feel this has further to go. Banks are also getting over the worst of the fines from regulators, though some big ones for RBS and Barclays are still to be settled.

The high-yield market is benefiting from falling default rates and continued technical support from the more active loan market.

All in all, we feel that government bond markets could well provide disappointing returns but that more interesting areas such as banks, insurance companies and high yield will generate reasonable returns throughout the coming year.

14 September 2016

James Foster: Beyond government bonds …

James Foster, manager of the Artemis Strategic Bond Fund, considers the implications of central banks supporting bond markets – and sets out the opportunities he sees ahead.

Value of £1,000 invested at launch to 31 January 2017

Value of £1,000 invested at launch to 31 January 2017

Data from 30 June 2005. Source: Lipper Limited, data from 30 June 2005 to 7 March 2008 reflects class R quarterly accumulation units, and from 7 March 2008 to 31 January 2017 reflects class I quarterly accumulation units, bid to bid in sterling. All figures show total returns interest reinvested.

Bond rating allocation

Bond rating allocation

Source: Artemis as at 31 January 2017. Please note figures may not add up to 100% due to rounding.

Percentage growth (class I)

20162015201420132012
12 months to 31 December8.4%1.9%4.3%7.7%16.1%
20172016201520142013
12 months to 31 January10.4%-1.0%5.1%8.3%12.8%
Please remember that past performance is not a guide to the future. Source: Lipper Limited, quarterly accumulation units, bid to bid in sterling. All figures show total returns with interest reinvested.

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James Foster: Beyond government bonds …





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Risk warnings

THIS INFORMATION IS FOR PROFESSIONAL ADVISERS ONLY and should not be relied upon by retail investors.
The fund may use derivatives to meet its investment objective, to protect the value of the fund, to reduce costs and with the aim of profiting from falling prices. The fund may invest in fixed interest securities. The fund may invest in higher yielding bonds.
The fund holds bonds which could prove difficult to sell. As a result, the fund may have to lower the selling price, sell other investments or forego more appealing investment opportunities.
Any research and analysis in this communication has been obtained by Artemis for its own use. Although this communication is based on sources of information that Artemis believes to be reliable, no guarantee is given as to its accuracy or completeness.
Any forward-looking statements are based on Artemis’ current expectations and projections and are subject to change without notice.
Issued by Artemis Fund Managers Ltd which is authorised and regulated by the Financial Conduct Authority.

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