Artemis Strategic Assets Fund update

David Hollis, manager of the Artemis Strategic Assets Fund, reports on the fund over the quarter to 30 September 2024 and his views on the outlook.

David Hollis

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

Market review

Markets performed well in Q3, with global stocks and bonds delivering gains. However, these headline figures concealed significant turmoil partway through the quarter.

Concerns about a potential US recession, the unwinding of the yen carry trade and doubts over tech valuations triggered a substantial sell-off in August. At one point, the VIX volatility index reached its highest intraday level since the initial pandemic wave in March 2020.

However, the volatility was short-lived. A dovish pivot from central banks, including a 50bps rate cut by the Federal Reserve, along with stronger US economic data and new stimulus measures from China, led to a marked recovery. By the end of Q3, the S&P 500 had achieved its strongest year-to-date performance of the 21st century.

Against this backdrop, the fund returned 1.4% over the quarter, outperforming its IA Flexible Investment sector and the CPI + 3% performance target.


 Three months Six months One year Three years Five years
Artemis Strategic Assets 1.4% 0.6% 3.9% 18.7% 26.7%
CPI +3% 0.9%  2.4%  4.7%  29.8%  42.6% 
IA Flexible Investment sector 1.1% 3.0% 13.9% 7.8% 29.9%
Past performance is not a guide to the future. Source: Lipper Limited to 30 September 2024 for class I Acc 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. This class may have charges or a hedging approach different from those in the IA sector benchmark.

Activity

Over the course of the quarter, we moved our bond position from neutral duration to around a 12-year long position. Equity exposure fell during the market correction in August, but we rebuilt this to 22% by the end of the period. Since the change in management, the fund has shown a low correlation to equities, bonds and commodities, a key objective of the strategy.

As at quarter end, our most significant positions were:

  • Short Australian dollar: Over the past few months, our market-neutral FX model has been bearish on the currency, driven by relatively poor business sentiment and worsening technicals since July. Additionally, we have detected a decline in the relative competitiveness of the Australian economy since May.
  • Long Japanese equities: Our cross-sectional (MDM) equities model has favoured Japanese equities for some months now, primarily driven by the relative outperformance in the momentum of fundamentals such as earnings compared with developed market peers.
  • Long emerging market equities: In August, we increased our long position in emerging market equities relative to a basket of country-level equity indices. Our model has indicated improving valuations, coupled with positive momentum in fundamentals over the past six months. While some technical indicators also support a long position, they are not as bullish as earlier in the summer.

Outlook

US growth surprisingly robust

Labour markets in the US have been relatively resilient of late, as has sentiment in the services sector. Within manufacturing, however, sentiment is much weaker and the employment sub-component of surveys has deteriorated further. Fortunately, inflation has continued to moderate gradually, providing relief for the Federal Reserve, which is keen to reduce interest rates to support growth.

More Federal Reserve cuts coming

With inflation continuing to moderate and some areas of the labour market remaining soft, further reductions in interest rates are likely in the coming months. Nevertheless, the relative robustness in US economic data may slow the rate of interest rate cuts, and the recent reversal in bond prices reflects a reality check with respect to how much monetary easing was being priced into markets. At the time of writing, bond markets are expecting around 50bps of rate cuts by year end.

Once activity slows significantly, stocks will decline

Equities typically rally while interest rates are being cut, at least until economic growth begins to slow significantly and then company earnings roll over. It's not clear precisely when, or if, this will happen, but we have a US election to navigate, and for now US data is proving surprisingly robust.

Rate cuts have begun elsewhere and activity is already slowing

The activity slowdown is more obvious in other countries, such as Canada, which began cutting rates in June and indicated it is prepared to accelerate the pace of monetary easing. In Sweden, interest rates have been lowered and activity is anaemic, while in Europe core countries are seeing more pronounced weakness, notably in the German manufacturing sector. However, there may be some benefit from the recently announced Chinese stimulus.

Benchmarks: CPI +3%; A widely-used indicator of UK inflation. It acts as a ‘target benchmark’ that the fund aims to outperform by at least 3% per annum over at least five years. IA Flexible Investment NR; A group of other asset managers’ funds that invest in similar asset types as this fund, collated by the Investment Association. It acts as a ‘comparator benchmark’ against which the fund’s performance can be compared. Management of the fund is not restricted by these benchmarks.

David Hollis

Manages:

Multi-asset strategy

David is a fund manager in Artemis’ multi-asset team.

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