Artemis Funds (Lux) – Short-Dated Global High Yield Bond fund review of the year to 30 April 2023

David Ennett and Jack Holmes, managers of the Artemis Funds (Lux) – Short-Dated Global High Yield Bond, report on the fund over the year to 30 April 2023.

David Ennett

Main changes to the fund

  • Early in the period, we felt that excessive pessimism about the economic outlook was being priced into certain cyclical bonds, most notably in Europe and that the slowdown would not be as bad as feared. In this vein, we added positions in North Sea energy producers EnQuest (at 12% yield) and Neptune (8.9%), as well as European / Global specialty chemicals producer, INEOS Quattro (11.7%).
  • At the start of 2023, there was a very positive tone in the high-yield market, which encouraged new issuance. The fund invested in short-dated new issues from Canadian banking giant RBC, as well as German tier-1 auto supplier ZF and speciality chemicals producer Italmatch.
  • In the secondary market, we added Drax USD bonds, US hospitality operator Legends Hospitality and UK homebuilder, Miller Homes via their 2028 Euro floating rate note at a yield of just over 14%.
  • Given the fund’s tendency to run positions until redemption, most of these purchases were made with coupons. Sales were limited but included Selecta, TalkTalk and Burger King.

Explaining the fund’s performance

  • The fund returned 7.51%1 over the period.
  • Positive contributions came from a wide range of sectors, including real estate and more cyclical industrial companies. In general, our preference B-rated over BB-rated credit aided performance. UK credit also performed well as its relative cheapness attracted buyers.

The wider context

  • March saw volatility return to markets driven by heightened concerns about financial stability. This was a jarring break from the more familiar worries about inflation of the past year or so. The failure, and ultimate rescue of, US regional lender Silicon Valley Bank (SVB), alerted markets to the challenges policymakers will face reversing more than a decade of quantitative easing and suppressed yields. Inevitably, concerns spread to the US regional banking sector as a whole, and soon to Europe with Credit Suisse (CS) coming into sharp focus, culminating in its sale to UBS.

Looking ahead

  • There is little doubt that the financial stability concerns which flared up in March have added a new dimension to the 2023 outlook. We have sympathy with the view that an apparent trade-off between financial stability and fighting inflation may emerge amongst central bankers or – at the very least – will be debated by markets. However, we feel that the resilience built into the global financial system is such that, in time, policy makers will be able to refocus on their commitment to fighting inflation.
  • We also continue to see strength and cautious optimism amongst the corporate sectors in which we invest. We believe our strategy of focussing on high-yield credit without taking undue duration risk as being ideally suited to the current environment.
    
Discrete performance, 12 months to 31 December 2022 2021 2020 2019 2018
 Artemis Funds (Lux) – Short-dated Global High Yield Bond -3.9% 4.9% 1.5% N/A N/A
Secured Overnight Financing Rate (SOFR) 1.6% 0.0% 0.4% N/A 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.

David Ennett

Manages:

‘Global high yield', 'High income', 'Monthly distribution', 'Strategic bond'

David co-manages Artemis‘ ‘global high yield‘, ‘monthly distribution‘ and ‘high income‘ strategies.

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Jack Holmes

Manages:

‘Global high yield', 'high income', 'monthly distribution', 'short-duration strategic bond'

Jack co-manages Artemis’ 'global high yield bond' strategy, 'high income' strategy and 'short-duration strategic bond' strategies, plus the bonds element of Artemis‘ ‘monthly distribution‘ strategy.

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