Artemis SmartGARP Global Equity quarterly review, December 2023
Raheel Altaf and Peter Saacke, managers of the Artemis SmartGARP Global Equity Fund, report on the fund over the quarter to 31 December 2023.
Source for all information: Artemis as at 31 December 2023, unless otherwise stated.
Fund objective
The fund’s objective is to grow capital over a five-year period.
Performance
The fund returned 0.2% in the fourth quarter, behind its benchmark the MSCI All Country World index1, which made 6.3%. That return was also behind its second benchmark, the IA’s Global2 sector, where the average gain was 6.8%.
For full five-year discrete performance, please see below. Please remember that past performance is not a guide to the future.
The global stockmarket finished 2023 strongly on the back of declining inflation and hopes that the US’s central bank, the Federal Reserve, could soon cut interest rates. Government bonds rose across the developed world and shares rallied.
During the quarter, the MSCI AC World index rose by 11% in dollar terms, though for UK-based investors this fell to 6.3% after the pound appreciated by more than 4% against the US currency. US and European shares performed best over this period while those in Japan, emerging markets and Asia ex-Japan lagged behind. In terms of industries, semiconductor and software shares rose by almost 20% on average while energy shares fell along with oil prices.
These trends hampered the performance of our fund: we had a below-average (underweight) position in semiconductor and software shares and an above-average (overweight) position in emerging markets, especially China.
The fund’s biggest detractors from performance in the fourth quarter were a mix of Chinese companies, energy companies and a combination of the two (PetroChina and CNOOC). Just as painful, though, was the absence of meaningful positive contributors, with only our holdings in Associated British Foods, US clothing company G-III Apparel and our avoidance of laggard Tesla adding more than 0.1 percentage points to performance.
Top contributors to performance were:
- US clothing company G-III Apparel
- US car maker Tesla, which we don’t own
- Associated British Foods
The biggest detractors from performance were:
- Chinese insurer PICC Property & Casualty
- Chinese online retailer Alibaba
- Chinese energy company PetroChina
Activity
Investment activity in the fourth quarter was relatively muted compared with the rest of 2023. We increased the fund’s exposure to technology, principally through adding to our position in Microsoft, though we remain underweight the sector. We also increased our exposure to natural resources by buying shares in British/Australian miner Rio Tinto. These purchases were mostly financed from sales in consumer goods (such as Sprouts Farmers Market, Unilever, Altria and Philip Morris) as well as some positions in industrials (such as Marubeni, Caterpillar and BWX Technologies).
These changes leave the fund’s principal exposures little changed: regionally, we remain overweight Europe, emerging markets and Japan and underweight the US. At the sector level, we still prefer banks, insurance and energy and remain well underweight technology and, to a lesser extent, financial services and industrials.
The fund also retains a pronounced tilt towards value shares: at the end of September, it was trading on an average price-to-earnings (P/E) ratio (a key measure of valuation) of 8.6x compared with 16.6x from the MSCI All Country World index. This 48% discount is not far from its lowest point over the 20 years in which the present manager has been in charge.
We bought these positions:
- Microsoft (increased our position)
- Taiwan Semiconductor Manufacturing Company
- British/Australian miner Rio Tinto
We sold these positions:
- US supermarket chain Sprouts Farmers Market
- British consumer goods company Unilever
- US tobacconist Philip Morris
Outlook
Following two good years, the fund's performance in 2023 was disappointing. Its low exposure to the Magnificent Seven US technology companies (Apple, Alphabet, Microsoft, Amazon, Meta, Tesla and Nvidia) hindered its progress, as did overweights in Europe and emerging markets. Most importantly, however, our bias towards stable businesses trading cheaply and with low levels of debt did not pay off in a year when investor optimism surged.
Still, SmartGARP, the disciplined process that we follow, suggests these parts of the stockmarket continue to offer the most attractive potential returns to shareholders.
Over the 20 years the present fund manager has been in charge, sticking to our investment process, especially after a period of unimpressive returns, has proved to be the correct approach. We see no reason to deviate from it now.
As we have argued before, it seems likely that the delayed impact of rising interest rates will create challenging economic and investment conditions. At the same time, however, it strikes us that the narrow list of shares that has led the global stockmarket higher in recent years has opened up pockets of attractive investment opportunities behind it. As mentioned above, these include the UK, Japan and parts of continental Europe and emerging markets.
Therefore, while we are not particularly optimistic about the outlook for the stockmarket in general, we are rather more enthusiastic about the outlook for our fund. Our approach focuses on what companies are telling us regarding their individual business prospects to ensure that the fund’s positioning reflects this. Against this backdrop, our fund’s bias towards companies with resilient profits and low levels of debt – which, as an additional layer of protection, trade well below average market valuations – remains warranted.
| Discrete performance 12 months to 31 December | 2023 | 2022 | 2021 | 2020 | 2019 |
|---|---|---|---|---|---|
| Artemis SmartGARP Global Equity Fund, class I accumulation GBP | 3.9% | -2.5% | 23.6% | 1.9% | 16.5% |
| MSCI AC World NR GBP | 15.3% | -8.1% | 19.6% | 12.7% | 21.7% |
| IA Global NR | 12.5% | -11.1% | 18.2% | 15.1% | 22.3% |
Market volatility risk
The value of the fund and any income from it can fall or rise because of movements in stockmarkets, currencies and interest rates, each of which can move irrationally and be affected unpredictably by diverse factors, including political and economic events.
Currency risk
The fund’s assets may be priced in currencies other than the fund base currency. Changes in currency exchange rates can therefore affect the fund's value.
Emerging markets risk
Compared to more established economies, investments in emerging markets may be subject to greater volatility due to differences in generally accepted accounting principles, less governed standards or from economic or political instability. Under certain market conditions assets may be difficult to sell.
THIS IS A MARKETING COMMUNICATION. BEFORE MAKING ANY FINAL INVESTMENT DECISIONS, REFER TO THE FUND PROSPECTUS, AVAILABLE IN ENGLISH, AND KIID/KID, AVAILABLE IN ENGLISH AND IN YOUR LOCAL LANGUAGE DEPENDING ON LOCAL COUNTRY REGISTRATION, FROM WWW.ARTEMISFUNDS.COM OR WWW.FUNDINFO.COM.
ARTEMIS DOES NOT PROVIDE INVESTMENT ADVICE ON THE ADVANTAGES OR SUITABILITY OF ITS PRODUCTS AND NO INFORMATION PROVIDED SHOULD BE VIEWED IN THIS WAY. ARTEMIS ONLY PROVIDES INFORMATION ABOUT ITS OWN PRODUCTS AND SERVICES AND DOES NOT ADVISE INVESTORS. SHOULD YOU BE UNSURE ABOUT THE SUITABILITY OF AN INVESTMENT, YOU SHOULD CONSULT A SUITABLY QUALIFIED PROFESSIONAL ADVISER.
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 www.artemisfunds.com.