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Artemis UK Smaller Companies Fund

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

The aim of the fund is to achieve long-term capital growth. The emphasis of the fund will be investment in smaller companies listed, quoted and/or traded in the UK and in smaller companies which are headquartered or have a significant part of their activities in the UK which are quoted on a regulated market outside the UK.

Current prices and yield
(class I)

As at noon, 24 February 2017
Bid price (acc units)1465.01p
Bid price (dist units)1434.29p
Offer price (acc units)1509.50p
Offer price (dist units)1477.85p
Historic yield (acc units)1.72%
Historic yield (dist units)n/a

Investment information
(class I)

Minimum lump sum investment£250,000
Ongoing charge (acc units)0.84%
Ongoing charge (dist units)0.84%

The initial charge is currently waived. The ongoing charge includes the annual management charge of 0.75% 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

The year has started well. The fund rose by nearly 3% in January - well ahead of the index. It was a busy month with around a third of the portfolio providing updates on trading. The majority of these updates were positive.

Games Workshop, which makes and sells fantasy model games and figurines, announced a 13% improvement in underlying sales in the first half, which caused profits to double.

Games Workshop, which makes and sells fantasy model games and figurines, announced a 13% improvement in underlying sales in the first half, which caused profits to double. The following week they announced that continuing strong trading would mean higher profits for the full year (forecasts were increased by 17%). Encouragingly, the company is seeing growth across all areas of its business: retail, wholesale and online and in all of the countries in which they operate. This bodes well for what is one of the most vertically integrated businesses we follow.

Somero, the global leader in concrete-levelling machinery, saw a strong finish to the year, with sales and profits ahead of expectations. The prospects for this year look encouraging and could be further boosted by president Trump’s potential reforms to taxes and plans for higher spending. The shares continue to trade on a modest 11x current year earnings or a free cashflow yield of 7%. This still looks reasonable value despite the cyclical risk. The company has a rare global monopolistic position and a strong balance sheet (there is the prospect of a special dividend to return surplus cash later in the year). As the shares have performed so well, Somero has become one of our largest holdings so we have continued to trim our holding as the price has strengthened.

Centaur Media (business information and events) was one of our worst performing stocks last year. The fear that it would warn on profits again was so acute that when the company announced that revenue, profits and debt would be in line with expectations the shares bounced by 18%. The group is working hard to reduce its exposure to a slowing advertising market to concentrate on products where earnings are more predictable, such as subscriptions and events. Despite the move in the share price we think the market is still undervaluing the improved cash generation that these changes should bring.

Another good update was provided by Polar Capital, the fund manager. They reported that net outflows from their Japanese funds were more than offset by inflows in other areas. The shares responded well as the perception is that the worst may now be behind them. The group’s high operational gearing should mean a healthy future flow in cash and dividends. We added to our holding.

We only traded modestly during the month, largely adding to those holdings that had not performed particularly well, such as Biffa, U&I and Helical. These were funded by a continued trimming of our recent winners including CVS, Severfield and Mears.

It was interesting to see another cash bid for one of our holdings. The management of North Sea oil producer Ithaca Energy recommended a 120p bid from Delek Group, a 20% shareholder. We find the offer rather disappointing as it comes only a month ahead of the start-up of the group’s key Greater Stella production hub, which should produce $150m of free cashflow per year at the current oil price. This compares with a market value of the group of only $600m at the offer price. We believe the offer (and analysts’ price targets) may fully reflect the NAV of existing assets, but does not capture the potential value of future acquisitions of nearby fields which could then use Stella’s low-cost hub. While we hope for a better return for our investors, it is encouraging that others are seeing value in the portfolio of assets we own. This offer comes after the recent bids for our holdings in Creston and Source BioScience.

16 December 2016

Mark Niznik: Companies with pricing power …

The weaker pound has pushed up the price of imports. This will potentially put pressure on operating margins. Mark Niznik, a manager of the Artemis Smaller Companies Fund, talks about choosing companies that can pass on increased costs to their customers.

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

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

Data from 3 April 1998. Source: Lipper Limited, data from 3 April 1998 to 1 September 2010 reflects class R accumulation units, and from 1 September 2010 to 31 January 2017 reflects class I accumulation units, bid to bid in sterling. All figures show total returns with dividends reinvested.

Asset allocation

Asset 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 December12.9%19.0%-4.1%31.2%22.6%
20172016201520142013
12 months to 31 January19.9%13.9%-3.8%24.3%25.3%
Please remember that past performance is not a guide to the future. Source: Lipper Limited, accumulation units, bid to bid in sterling. All figures show total returns with dividends reinvested.

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Mark Niznik: Companies with pricing power …





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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 invest in the shares of small and medium sized companies.
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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