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Artemis Strategic Bond Fund

All data as at 28 February 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, 30 March 2017
Bid price (quarterly acc units)94.84p
Bid price (quarterly dist units)85.81p
Offer price (quarterly acc units)96.52p
Offer price (quarterly dist units)87.33p
Distribution yield (as at 28 Feb 17)4.0%

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
As worries about Brexit and its implications for the economy resurfaced, government bonds had a very positive month. UK gilts outperformed. US Treasuries also performed surprisingly well, despite the prospect of a rise in interest rates in March.

The US, for instance, is likely to raise rates in March and again later this year.

Investment grade bonds (rated BBB and above)
Hybrid bonds and financials, especially junior ‘coco’ bonds, had the strongest performance. Issuance continued across the full range of issues keeping turnover relatively high. RWE announced a major restructuring which means their bonds lose their equity credit, which was very positive for their performance.

High yield (rated below BBB)
As ever-lower yields on government bonds encouraged investors to hunt for income elsewhere, February was a very good month for high-yield bonds.

We increased our short position in gilts through the month. In the short term, this is costing us some performance. We have been taking profits on our Arqiva bonds, which have a negative yield to call, and CMA bonds which have rallied very sharply over the last few months. We have added to Nationwide, Verallia (through a new issue) and TalkTalk.

We were disappointed by the outperformance of gilts in February. But we remain convinced that our short position in them will be rewarded as rising inflation and higher interest rates emerge. The US, for instance, is likely to raise rates in March and again later this year. Moreover, quantitative easing is likely to be scaled back in both the US (with the programme of reinvesting proceeds from the Fed’s existing bond portfolio up for debate) and the UK.

Politics has been to the fore, especially in Europe, as French elections approach and the perennial row over the Greek deficit continues. The former is the greater worry, as a victory for Marine Le Pen would presage the splitting up of the EU. This is unlikely, though she may well win the first round. The market seems to be more worried than us and has pushed German government bond yields down to record low negative levels.

Hybrid bonds have been very good performers. One of our top holdings has been RWE which lost their equity credit after a restructuring. This is an unusual situation where the bonds will become senior securities. This has enhanced the attractiveness of the asset class though other moves of a similar style are unlikely.

Meanwhile, the high yield market has been performing extremely well. Especially shorter-dated bonds, some of which have now reached negative yields (to call). We are reducing these as a result.

24 March 2017

Fixed income: The environment has changed…

James Foster, manager of the Artemis Strategic Bond Fund, explains how he is positioning the portfolio for higher interest rates. He is favouring shorter-dated bonds and sees value in financials.

Value of £1,000 invested at launch to 28 February 2017

Value of £1,000 invested at launch to 28 February 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 28 February 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 28 February 2017. Please note figures may not add up to 100% due to rounding.

Percentage growth (class I)

12 months to 31 December8.4%1.9%4.3%7.7%16.1%
12 months to 28 February13.0%-3.2%5.3%8.5%11.1%
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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Fixed income: The environment has changed…

Security Code

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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