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Artemis UK Smaller Companies Fund

All data as at 28 February 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, 22 March 2017
Bid price (acc units)1483.88p
Bid price (dist units)1452.51p
Offer price (acc units)1529.26p
Offer price (dist units)1496.92p
Historic yield (acc units)1.70%
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 fund’s strong start to 2017 continued in February. One of its best performers was RM Group, which provides resources for education. The market welcomed its acquisition of Connect’s educational supplies business. We own shares in both RM and Connect and view this as a good deal for both. RM will benefit from significant synergies in a market it knows well. The two businesses are geographically complementary and RM should enjoy substantial savings both from better buying power and from cutting costs where they are duplicated. This should more than offset the challenging conditions resulting from the government’s austerity measures. Connect, meanwhile, will free up capital from an area in which it had struggled to grow and allow it to invest in other parts of the business. RM financed the £56 million purchase mostly from the £40 million of cash they had on their balance sheet, resulting in a substantial (c.40%) upgrade to their earnings. The positive reaction of the share price (up 26% on the month) reminds us that the market often fails to fully value strong balance sheets until they are deployed. We will continue to exploit the opportunities this provides. There were few major losers in the month. Alliance Pharma was the biggest drag on returns despite a lack of any real news.

One of its best performers was RM Group, which provides resources for education.

We started two new holdings in February. One is an old favourite; the other we bought at IPO. We’ve long liked NCC’s software escrow business. This is where companies lodge the source code to ‘mission-critical’ software to provide a back-up should their software provider go bust. NCC receives a small insurance-like premium for holding the code. For NCC this business produces a stream of recurring cashflows and needs very little capital. Margins on this business are very high. This is close to an ideal investment for us. NCC’s main problem in recent years has been that it has made some terrible acquisitions in the ‘ethical hacking’ side of their business. After several recent profit warnings, we felt the shares had fallen to such a level that the current group valuation was justified by the escrow business alone. We started a modest holding.

We also took part in the IPO of pension consultant Xafinity. Its venture capitalist owner was looking to sell. The group advises trustees of defined benefit pension schemes and manages personal pension plans. The fees are recurring, require no capital and clients stay with them for a long time. At a multiple of 15x current year earnings or a 5% free cashflow yield, we felt this offered good value on a three-to-five-year view. These additions were funded by trimming some of our holdings that had done well such as Moneysupermarket.com, Telecom Plus and Severfield.

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 28 February 2017

Value of £1,000 invested at launch to 28 February 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 28 February 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 28 February 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 28 February25.8%9.0%-4.5%24.6%21.8%
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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