Artemis SmartGARP Global Equity Fund update

Peter Saacke, manager of the Artemis SmartGARP Global Equity Fund, reports on the fund over the quarter to 30 June 2023 and his views on the outlook.

Highlights

  • Gently lagging buoyant market due to low megacap growth exposure
  • Fund up 2.0% versus 3.2% rise of benchmark during the quarter.
  • AI enthusiasm coupled with optimism regarding the outlook for inflation and growth drives markets higher.
  • Underweights in Apple, NVIDIA, Microsoft, Amazon, Tesla and Alphabet the five biggest performance detractors, costing 2.2%-age points in aggregate.
  • Few changes to regional and sectoral positioning: still most overweight banks, insurance and consumer staples, underweight tech, retail and healthcare.
  • Prefer emerging markets, Europe and Japan to US equities.
  • Fund sticking to its tilt towards value and low risk

Performance – AI enthusiasm and economic optimism fuel stock market rally

Excitement surrounding the prospects of Artificial Intelligence to boost productivity and (some) companies’ profits helped extend the strong performance of a number of megacap technology stocks. Falling headline rates of inflation and evidence of the resilience of especially the US economy in spite of sharp monetary tightening heightened investors' optimism further.

Accordingly, the MSCI All Country World index rose by 3.2% including dividends, thus extending year-to-date gains to almost 8% in sterling terms. US equities led the way, while European equities and especially emerging market stocks lagged. At the sector level, technology stocks in general and semiconductors in particular led the way with double digit gains, while resource stocks and stocks in economically defensive sectors such as healthcare, utilities and telecoms trailed.

These trends were mostly headwinds for the performance of our fund. Our underweight in tech hurt, as did our overweights in Europe and emerging markets. For the quarter as a whole, the fund’s net asset value rose by 2.0% versus a benchmark return of +3.2% in sterling terms.

In a repeat of Q1, seven of the top 10 detractors from performance were megacap growth stocks, with the top five being underweight Apple, NVIDIA, Microsoft, Amazon, Tesla and Alphabet, which in aggregate subtracted 2.2%-age points from performance. The only other material detractor from performance was our investment in Perion, an Israeli advertising technology company whose shares fell 25% during the quarter in spite of resilient newsflow from the company.

On the positive side, our overweight stance in Japan deserves a mention, with investments in the likes of trading companies Itochu, Toyota Tsusho and Marubeni being particularly successful. Singaporean utility Sembcorp Industries also stood out with a 28% gain during the quarter. Finally, while emerging markets underperformed in general, our fund was and remains invested in a number of strongly performing stocks, including Sinotrans, Picc Property and Casualty (both China), Banco do Brasil and National Bank of Greece.

Activity – Sticking to overweights in financials and staples, especially in Europe and emerging markets

While there were no major changes in the fund’s key exposures during the quarter, turnover in the portfolio nonetheless remained material.

We thus bought back into Alphabet and Microsoft following evidence of a reacceleration of business trends and also added Johnson & Johnson back to the portfolio after the de-rating of its valuation in the last five months. We also increased our exposure to utilities with new investments in the likes of E.ON (Germany) and Engie (France). Last, not least, we added a new position in Barclays while adding to our existing holdings in JPMorgan and China CITIC Bank.

These purchases were funded from sales of food producers Conagra, Archer Daniels Midland and Unilever, retailers Kroger, PVH and Alibaba and energy stocks Exxon Mobil and TGS (Norway).

Still, in spite of these changes, the fund’s principal exposures have not changed dramatically. Regionally we continue to be overweight in emerging markets (20% of fund vs. 10% benchmark weight) and Europe (26% versus 16%) and underweight especially in the US (42% versus 62%). At the sector level, we still prefer banks, insurance and consumer staples and remain very underweight technology and, to a lesser extent, healthcare and retailers.

Last, not least, the fund’s tilt towards value stocks remains very pronounced: at the end of June, the fund was trading on an average price-earnings ratio of 8.0 versus the benchmark at 15.8. This 49% discount to the market remains very low in the context of the 19.5 years the present manager has managed the fund.

Outlook – Continued focus on company news flow rather than chasing the latest themes

The story of the year in global equities has been the resumption of leadership of 'mega cap' growth stocks such as those mentioned above. Where available at valuations justified by strong fundamentals (such as Microsoft and Alphabet) we are happy to commit capital. In many other mega caps, however, we see the balance of risk and reward as unfavourable. This has been a severe headwind for performance this year, not least in May when elevated excitement for all things AI went into overdrive.

Still, painful though they are, periods of very narrow leadership are typically short-lived. Therefore, rather than chase the latest themes we remain squarely focused on what companies are telling us regarding their individual business prospects to ensure that the fund’s positioning reflects this in a timely manner. Against this backdrop, our fund’s bias towards companies with resilient earnings and healthy balance sheets, which - as an additional layer of protection - trade on below market valuations, continues to be warranted, in our view.

Past performance is not a guide to the future.
Source: Lipper Limited/Artemis from 31 March 2023 to 30 June 2023 for class I accumulation GBP.
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.
Classes may have charges or a hedging approach different from those in the IA sector benchmark.
Benchmarks: MSCI AC World NR; A widely-used indicator of the performance of global stockmarkets, in which the fund invests. IA Global NR; A group of other asset managers’ funds that invest in similar asset types as this fund, collated by the Investment Association. These benchmarks act as ‘comparator benchmarks’ against which the fund’s performance can be compared. Management of the fund is not restricted by these benchmarks.

Investment in a fund concerns the acquisition of units/shares in the fund and not in the underlying assets of the fund.

Reference to specific shares or companies should not be taken as advice or a recommendation to invest in them.

For information on sustainability-related aspects of a fund, visit the relevant fund page on this website.

For information about Artemis’ fund structures and registration status, visit artemisfunds.com/fund-structures

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 statements are based on Artemis’ current opinions and are subject to change without notice. They are not intended to provide investment advice and should not be construed as a recommendation.

Third parties (including FTSE and Morningstar) whose data may be included in this document do not accept any liability for errors or omissions. For information, visit artemisfunds.com/third-party-data.

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