Artemis Funds (Lux) – US Smaller Companies fund review of the year to 30 April 2023

Cormac Weldon and Olivia Micklem, managers of the Artemis Funds (Lux) – US Smaller Companies, report on the fund over the year to 30 April 2023

Cormac Weldon

Main changes to the fund

  • Early in the period we added to consumer-related companies including Burlington Stores (discount retailer), Builders FirstSource (housing) and Planet Fitness (chain of gyms).
  • We sold a number of holdings with disappointing fundamental results, including Assurant in financials and Maravai, Bio-Rad and Syneos in healthcare.
  • We added to software companies which we believe are ripe for either self-help like Tenable or help from the outside like Sumo. We also added Twilio.
  • In the wake of the troubles in the US regional banking sector, we reduced our exposure to real estate. Specifically, we cut our holding in WillScot Mobile which is broadly exposed to infrastructure expenditure, including commercial real estate development. We felt it prudent to cut the holding as we assess whether the company’s fundamentals are impacted by the banking uncertainty.

Explaining the fund’s performance

  • The fund returned -1.9% over the period, holding up better than the Russell 2000 index’s return of -3.5%1.
  • On the positive side, a number of our holdings performed well in the results season over April, including Churchill Downs, Builders FirstSource, Axon Enterprise (the maker of Taser), Constellation Energy and Clean Harbors, which operates waste disposal for hazardous materials.
  • The failure of Silicon Valley Bank at the start of March led to fears of contagion to the rest of the banking sector and a deposit run on other smaller banks. While the fund was underweight banks it did hold one of those banks which experienced significant share price weakness, Western Alliance, as a large proportion of their deposits were uninsured. The stock fell markedly, but we decided to sell our holding as not many banks recover from having experienced a run on their deposits. Other financial holdings also underperformed although none of those are in a similar situation to Western Alliance.

The wider context

  • The impact of Covid has been to produce recessionary conditions in a number of sectors of the economy, without a recession actually incurring. We would include consumer durables, social media, parts of healthcare, semiconductors and transportation as examples of sectors most of whom experienced a boom during lockdown and are now experiencing in some cases severe slowdown. In addition we have obviously seen quite severe valuation compression in growth stocks no longer buoyed by zero interest rates. We think these dynamics have produced exceptional opportunities.

Looking ahead

  • We do not believe interest rates will return to the extreme lows of the pandemic era. As such, companies that can demonstrate growth, while also generating healthy cashflow and earnings should be able to beat the market. We believe this will benefit our portfolio’s bias to quality stocks – those with predictable, growing earnings and high free cashflows.
Discrete performance, 12 months to 31 December 2022 2021 2020 2019 2018
 Artemis Funds (Lux) – US Smaller Companies -28.7% 17.3% 28.6% 30.7% N/A
Russell 2000 TR -20.4% 14.8% 20.0% 25.5% N/A
1 Artemis/Lipper Limited, class I accumulation USD
*Past performance is not a guide to the future.
Source: Artemis/Lipper Limited, class I accumulation USD. All figures show total returns with dividends and/or income reinvested, net of all charges. Performance does not take account of any costs incurred when investors buy or sell the fund. Returns may vary as a result of currency fluctuations if the investor's currency is different to that of the class.

Cormac Weldon

Manages:

US equity strategy

Cormac has managed Artemis’ US equity strategies since launch.

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Olivia Micklem

Manages:

‘US Smaller Companies’ strategy

Olivia co-manages Artemis’ ‘US Smaller Companies’ strategy

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