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Private investors

Artemis Strategic Bond Fund

All data as at 28 February 2017 except where specified
  • Summary
  • About the fund
  • Performance (class R)
  • Performance (class I)
  • Composition
  • Key facts
  • Investment insights
  • Literature
  • How to invest


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 R)

As at noon, 30 March 2017
Bid price (quarterly acc units)91.68p
Bid price (quarterly dist units)56.88p
Offer price (quarterly acc units)97.23p
Offer price (quarterly dist units)60.33p
Distribution yield (as at 28 Feb 17)3.5%

Investment information
(class R)

Minimum lump sum investment£1,000
Ongoing charge (quarterly acc units)1.08%
Ongoing charge (quarterly dist units)1.08%

The initial charge is currently waived. The ongoing charge includes the annual management charge of 1.0% 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.

Activity
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.

Outlook
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, quarterly accumulation units, bid to bid in sterling to 28 February 2017. All figures show total returns with 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 R)

20162015201420132012
12 months to 31 December7.9%1.5%3.9%7.3%15.6%
20172016201520142013
12 months to 28 February12.5%-3.7%4.9%8.0%10.6%
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…





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About the fund

The Artemis Strategic Bond Fund invests in bonds issued by governments and companies. It uses the interest payments from these bonds with the aim of generating a regular income for investors.

The fund aims to preserve capital in tough times and to profit when conditions are good.

  • Flexible approach: traditional bond funds tend to restrict themselves to one area of the bond market. This fund, however, invests across the spectrum, moving between government bonds and investment-grade and high-yield bonds issued by companies.
  • Adapts to market conditions: by owning the right bonds for each stage of the economic cycle, the managers aim to preserve capital in difficult times and to profit when conditions improve.
  • Performance through varying economic conditions: since its launch in 2005, the fund has outperformed its sector average and currently offers investors an attractive yield.
  • Spreading risk: the fund typically holds between 80–100 positions and is well diversified by sector, credit rating and maturity.
  • Experience: James Foster has over 20 years’ experience of managing bond funds.

 

Reasons to consider

The fund may be suitable for investors looking for:

  • the prospect of a regular income and potential for capital growth
  • some protection of capital in tough times
  • a highly experienced management team

Introducing the fund

James Foster, co-manager alongside Alex Ralph, introduces the Artemis Strategic Bond Fund and explains how they make investment decisions.

Risk considerations

Before making an investment, investors should consider the level of risk they’re comfortable taking with their money.

  • The managers carefully scrutinise the organisations that issue bonds before investing. Some bonds may be issued by lower quality organisations; they pay a higher return but carry a higher risk that the organisation may not be able to make payments on them.  Overall, the managers aim to balance the level of risk across the fund’s portfolio.
  • Investors should be aware, though, that bonds can be affected by wider economic factors such as interest rates and inflation. At times, the manager makes use of more complex financial instruments which can add to the level of risk.
  • This fund’s ‘SRRI’ risk rating, a measure of how volatile the fund’s performance has been over time, is currently 3, in a range of 1 (lower risk) to 7 (higher risk).

More detailed information on fund risks is included in the ‘risk warnings’ section below.

Risk warnings

To ensure you understand whether this fund is suitable for you, please read the Key Investor Information Document, which is available, along with the fund’s Prospectus, from artemis.co.uk.

The value of any investment, and any income from it, can rise and fall with movements in stockmarkets, currencies and interest rates. These can move irrationally and can be affected unpredictably by diverse factors, including political and economic events. This could mean that you won’t get back the amount you originally invested.

The fund’s past performance should not be considered a guide to future returns.

The fund may use derivatives (financial instruments whose value is linked to the expected price movements of an underlying asset) for investment purposes, including taking long and short positions, and may use borrowing from time to time. It may also invest in derivatives to protect the value of the fund, reduce costs and/or generate additional income. Investing in derivatives also carries risks, however. In the case of a ‘short’ position, for example, if the price of the underlying asset rises in value, the fund will lose money.

The fund may invest in fixed-interest securities. These are issued by governments, companies and other entities and pay a fixed level of income or interest. These payments (including repayment of capital) are subject to credit risks. Meanwhile, the market value of these assets will be particularly influenced by movements in interest rates and by changes in interest-rate expectations.

The fund may invest in higher yielding bonds, which may increase the risk to your capital. Investing in these types of assets (which are also known as sub-investment grade bonds) can produce a higher yield but also brings an increased risk of default, which would affect the capital value of your investment.

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.
The distribution yield is an estimate of the income that you might expect to receive from your investment over the forthcoming year as a percentage of the fund’s mid-market unit price. It does not include any preliminary charge. Investors may be subject to tax on any distributions they receive.

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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