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 2024 and the outlook.

Philip Wolstencroft

Source for all information: Artemis as at 30 June 2024 unless otherwise stated.

  • The fund's performance was behind the benchmark in the quarter, still ahead year to date
  • Bank of Georgia held back performance, but good news continues
  • The aggregate PE of the fund's holdings is 7.1, yet the stocks are seeing share buybacks and upgrades

The fund's return was +0.3% in the second quarter and is +10.5% year to date. The respective numbers for the benchmark are +3.7% and +7.4%. So, the stocks we own are delivering good returns and are outperforming the market so far this year, but our lead shrank a bit in the last quarter. There is a tendency for commentators to focus month to month or quarter to quarter outcomes. The reality is that if we stick to doing simple things well, we can grind out small excess returns and end up way ahead of the competition.

  Three months Six months One year Three years Five years
Artemis SmartGARP UK Equity Fund 0.3% 10.5% 15.7% 32.8% 62.4%
FTSE All-Share 3.7% 7.4% 13.0% 23.9% 30.9%
IA UK All Companies Average 3.9% 6.9% 12.5% 8.9% 23.4%
Past performance is not a guide to the future. Source: Lipper Limited/Artemis as at 30 June 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. 

Our investment process has evolved (glacially) over the past two decades and it would appear to be effective. Essentially, we try to buy stocks that are lowly priced, growing and delivering pleasant surprises. The result is that we own stocks whose fundamentals end up having a better combination of growth and income than the market and our competitors. While it can sometimes feel uncomfortable to 'be different', we end up with a bunch of stocks that bear little resemblance to either the market or our competitors. Looking at the statistics above – this is probably a good thing.

Three months ago, our top five holdings included the likes of GlaxoSmithKline, Barclays, Bank of Georgia, Imperial Brands (Tobacco) and Marks & Spencer. They are still all in our top six, with Shell bumping out M&S. Nevertheless, Bank of Georgia (as the name suggests the main commercial bank in the country of Georgia) went from 5.1% to 3.7% partially because we started to take profits but mostly because the stock fell sharply on concerns over politics (Georgian not UK).

Politics notwithstanding, Bank of Georgia's underlying business has actually improved of late (it has cost to income, return on equity and levels of technology that UK banks can only dream of). Fortunately, it is quoted on the UK stock market and so clients have easy access to world class returns. A PE multiple of below 4x is just too low when the 10-year track record is for earnings per share to outgrow the UK market by over 20% per annum and all the evidence points to business as normal.

For the fund in total the prospective PE is 7.1x whereas the market is on 11.4x earnings. This ought to mean that we have poor quality companies. In reality, our companies are growing in line with their competitors, buying in shares (-3% over the past year) and seeing upgrades to profit forecasts (+3% in the past quarter). Over the past two decades the fundamental value per share of our fund has outgrown the market by about 2% per annum. There is no reason to suppose that this trend is over and I suspect that our fund will continue to stumble across companies with winning fundamentals. Ultimately share prices track these fundamentals:

SmartGARP UK

line graph showing SmartGARP UK

Source: Lipper/Artemis as at 30 June 2024

My view is that if we keep nudging our portfolio towards companies with good financial characteristics the probability increases that the result will be good financial returns over the long term. 

 

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.

Philip Wolstencroft

Manages:

UK and European equity strategies

Philip is a partner and the creator of an investment process (SmartGARP™) which Artemis uses to help choose stocks for five of its funds.

View Profile

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.

Important information
The intention of Artemis’ ‘investment insights’ articles is to present objective news, information, data and guidance on finance topics drawn from a diverse collection of sources. Content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security or investment by Artemis or any third-party. Potential investors should consider the need for independent financial advice. Any research or analysis has been procured by Artemis for its own use and may be acted on in that connection. The contents of articles are based on sources of information believed to be reliable; however, save to the extent required by applicable law or regulations, no guarantee, warranty or representation is given as to its accuracy or completeness. Any forward-looking statements are based on Artemis’ current opinions, expectations and projections. Articles are provided to you only incidentally, and any opinions expressed are subject to change without notice. The source for all data is Artemis, unless stated otherwise. The value of an investment, and any income from it, can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested.