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Private investors

Artemis UK Select Fund

All data as at 31 January 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 aims to provide long-term capital growth by investment in companies listed, quoted and/or traded in the UK and in 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 R)

As at noon, 24 February 2017
Bid price (acc units)482.04p
Offer price (acc units)509.74p
Historic yield (acc units)1.85%

Investment information
(class R)

Minimum lump sum investment£1,000
Ongoing charge (acc units)1.58%

The initial charge is currently waived. The ongoing charge includes the annual management charge of 1.5% 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

After a strong end to 2016, the UK market paused for breath in January. With data suggesting that growth in the global economy would accelerate in 2017, stockmarkets worldwide delivered strong returns in the final quarter of 2016. We now await the results season to see whether companies share investors’ optimism.

We remain of the view that we have a diversified portfolio of companies that are well placed to deliver strong earnings and dividend growth in the year ahead.

At a sector level, mining shares continued to rally, helped by further gains in the prices of iron ore and copper. Conversely, the oil sector lagged as a sharp rise in the number of rigs operating in the US confirmed that output from shale drillers would increase rapidly while the oil price remains above $50 per barrel. Healthcare also underperformed as the Republicans moved to repeal Obamacare and as president Trump tweeted his complaints about excessive drug pricing.

Focusing on the fund, some positive stock-specific news, combined with our underweight position in oil and gas, resulted in it outperforming its benchmark over the month. It returned 1.4% versus a 0.3% fall in the FTSE All-Share index.

Winners
The biggest contributor to performance was our holding in Fenner, which rallied following a positive update on trading. This is the third upgrade to profit forecasts in nine months and confirmed that their mining and oil and gas markets have turned upward after three years in which sales had fallen precipitously.

Elsewhere, our holdings in Anglo American and Vedanta continued to move higher as commodity prices rose. Housebuilder Crest Nicholson reported a strong set of full-year results: it has sold more homes and prices have risen. It continues to generate strong cashflows, supporting a 40% increase in its full-year dividend. Trading on a forecast dividend yield of over 6.5%, we still believe that there is a lot of value both in Crest Nicholson and the broader sector.

Losers
The main negative contributor to performance was media company St. Ives, whose legacy print business continues to disappoint. This time, the culprit was its in-store merchandise business, which is suffering as food retailers switch away from promotional offers towards ‘everyday low prices’. In our view, the resulting shortfall in profits and cashflows from this division makes the company’s current dividend policy incompatible with its strategy of investing in their high-growth marketing business. This undermines the thesis we had for holding this stock and we decided to sell it.

Elsewhere, Supergroup weighed on performance as its shares drifted lower along with the broader UK retail sector despite its strong Christmas trading statement. We remain very positive about the company’s prospects. We believe its shares, which trade on a forward p/e of just over 15x earnings in exchange for a growing, profitable, cash-generative business, are materially undervalued.

Activity
January was another quiet month. Following BT’s profit warning, we sold what remained of our small position. We had begun reducing the holding last year when it failed to reach an agreement with the regulator on the future of Openreach, its broadband subsidiary. The update highlighted that profits and cashflows from their corporate and global services divisions would be lower than expected, leaving cashflows more reliant on the fortunes of Openreach. Elsewhere, we added modestly to our holdings in Arrow Global (a purchaser and manager of debt) and Tyman (building products). Both stocks had drifted lower despite a lack of any real news. We funded these purchases by taking further profits in Vedanta.

Outlook
Our outlook is largely unchanged. On both sides of the Atlantic economic indicators such as employment rates and survey data continue to point in a positive direction. Given expectations of fiscal stimulus in the US, we would expect the rise in long-dated bond yields to continue. This should support a continued re-rating of financials as well as the ongoing shift into ‘value’ stocks. Both trends would benefit the portfolio’s current positioning. Looking at the outlook for the UK more narrowly, uncertainty over Brexit clouds the medium-term picture. For now, however, strong growth in consumer credit, rising nominal wages and continued low unemployment are likely to mean the upward revisions to growth forecasts continue. We therefore maintain a significant exposure to domestic stocks and believe the current uncertainty provides an opportunity to invest in UK companies with strong franchises on low valuations.

We remain of the view that we have a diversified portfolio of companies that are well placed to deliver strong earnings and dividend growth in the year ahead. On just 11x forecast 2017 earnings, the aggregate valuation of the portfolio remains attractive. We believe that as our holdings deliver on these earnings, the valuation gap to the rest of the market should start to close and so enable the fund to continue to recover the relative losses it endured in the first half of 2016.

14 February 2017

Faith in the consumer …

Ed Legget, manager of the Artemis UK Select Fund, talks about the outlook for UK consumer spending and its effect on the stockmarket. He explains why he sees value in housebuilders and selected financials.

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, accumulation units, bid to bid in sterling to 31 January 2017. All figures show total returns with dividends reinvested.

Net asset allocation

Net asset allocation

Source: Artemis as at 31 January 2017.

Percentage growth (class R)

20162015201420132012
12 months to 31 December1.0%11.3%-0.3%36.4%11.1%
20172016201520142013
12 months to 31 January10.3%1.2%4.0%27.1%15.0%
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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Faith in the consumer …





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About the fund

The Artemis UK Select Fund is actively managed to produce long-term growth. The managers use specialist software to screen the UK market for stocks with the right characteristics. They then analyse each company on the resulting shortlist to pick out the best investment opportunities. The result is a focused portfolio of UK equities that has little in common with market benchmarks.

  • ‘Multi-size’ strategy: the fund invests in companies across a spectrum of sizes, holding only those stocks whose value the managers believe will rise significantly over the long term. The fund will never hold a stock simply because it represents a significant proportion of the index.
  • Flexibility to ‘go short’: to enhance returns, the fund has the flexibility to hold ‘short’ positions in selected companies, where the managers believe a company’s share price will fall and aim to make profits as a result.
  • Focus on fundamentals: is a company healthy and will it grow? The managers look below the surface of a company’s financial statements in deciding where to invest – and if the answers to these questions are negative, when to take a ‘short’ position (where they aim to make money from a falling share price).

Reasons to consider

The fund may be suitable for investors looking for:

  • a core UK equities holding
  • the potential for capital growth
  • experienced fund managers with a good performance record

Risk considerations

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

  • This fund invests in a relatively small number of mostly UK companies, primarily substantial stable businesses. The managers carefully scrutinise companies’ balance sheets and cashflow statements before investing.
  • The fund also tries to identify shares that will fall in value. To do this, the manager will use derivatives (financial instruments whose value is linked to the expected price movements of an underlying asset). Investing in derivatives carries risks; in the case of a ‘short’ position, for example, if the price of the underlying asset doesn't fall in value as the manager expected, but instead rises, the fund will lose money.
  • Investors should be aware, though, that the usual risks of investing in stocks and shares apply – companies and stockmarkets can go through periods of turbulence and the value of your investment can fall.
  • Some of the fund’s investments may also be in smaller companies, which can be more vulnerable to financial or operational failure. The manager may also use more complex financial instruments which can add to the level of risk to investors’ money.
  • This fund’s ‘SRRI’ risk rating, a measure of how volatile the fund’s performance has been over time, is currently 5, 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 have a concentrated portfolio of investments. This can be more risky than spreading investments over a larger number of companies.
The fund may use derivatives (financial instruments whose value is linked to the expected price movements of an underlying asset) 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 the shares of small and medium-sized companies. Shares in smaller companies carry more risk than larger, more established companies because they are often more volatile and, under some circumstances, harder to sell. In addition, information for reliably determining the value of smaller companies – and the risks that owning them entails – can be harder to come by.

The historic yield reflects distribution payments declared by the fund over the previous year as a percentage of its mid-market unit price. It does not include any preliminary charge. Investors may be subject to tax on the distribution payments that they receive.
FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trademark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE data is permitted without FTSE’s express written consent.

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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