Artemis SmartGARP UK Equity Fund update
Philip Wolstencroft, manager of the Artemis SmartGARP UK Equity Fund, reports on the fund over the quarter to 30 June 2023 and the outlook.
Review of the quarter to 30 June 2023.
The fund returned -0.3% in the second quarter, outperforming its benchmark, the FTSE All-Share index, which returned -0.5%, and its peer group, the IA UK All Companies sector, which returned -0.7%.
Among the biggest contributors to performance in the quarter were three banks: Bank of Georgia, Standard Chartered and our largest holding, HSBC. In general, this sector rebounded in the quarter as fears receded that the collapse of three banks in the US and Europe would lead to contagion.
Not all bank holdings had a positive impact on performance, however. NatWest was the single biggest detractor. Despite reporting better-than-expected first-quarter profits, driven by higher interest rates, there was a sharp drop in customer deposits.
Energy stocks BP and Energean also did poorly as oil and gas prices continued to fall from their 2022 highs.
Activity
A year ago, we had a lot invested in oil companies and miners. As commodity prices have fallen, we trimmed or sold those holdings. The long-term prospects for these companies may still be good, but in the meantime, profit forecasts have been cut; we responded. Four of our biggest sales in the quarter were in the energy sector: BP, Shell, Energean and TotalEnergies.
We reinvested the proceeds in other parts of the market where earnings forecasts are more robust. One example is the insurance sector, where profit forecasts are rising sharply. We also initiated positions in airlines Air France-KLM and easyJet as they continue to recover from the pandemic.
Outlook
Markets are driven by a combination of fundamentals (such as profits and dividends) and short-term speculation. Ultimately, a company’s share price reflects its fundamentals – but there can be long periods in which speculation, sentiment and the market’s preference for a certain ‘type’ of company can result in dramatic mispricing. We saw an extreme example of this over the past decade. This may have been because interest rates were kept low, which encouraged speculation in financial markets: investors became accustomed to buying stocks whose share prices were rising rather than companies whose fundamentals were improving. Now that interest rates have risen, it is becoming a more dangerous environment for such speculation. A renewed focus on fundamentals should represent a helpful tailwind for our fund.
Source: Lipper Limited/Artemis from 31 March 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: FTSE All-Share Index TR; A widely-used indicator of the performance of the UK stockmarket, in which the fund invests. IA UK All Companies NR; A group of other asset managers’ funds that invest in similar asset types as this fund, collated by the Investment Association. These act as ‘comparator benchmarks’ against which the fund’s performance can be compared. Management of the fund is not restricted by these benchmarks.