Artemis Corporate Bond Fund update
Stephen Snowden and Grace Le, managers of the Artemis Corporate Bond Fund, report on the fund over the quarter to 30 June 2025.
Source for all information: Artemis as at 30 June 2025, unless otherwise stated.
Performance review
Credit spreads kicked off the period with a sharp sell-off, as US President Donald Trump announced his global tariff policy. Since then, the direction has been mostly one way – tighter. Markets recovered over the quarter as they regained some dented confidence.
The fund performed well against this backdrop, making 3% compared with 2.9% from its iBoxx £ Collateralized & Corporate index benchmark and 2.6% from its IA Sterling Corporate Bond sector. It finished in the first quartile of its sector across the quarter.
| Three months | Six months | One year | Three years | Five years | |
|---|---|---|---|---|---|
| Artemis Corporate Bond Fund | 3.0% | 3.8% | 6.3% | 14.9% | 7.1% |
| iBoxx £ Collateralized & Corporate index | 2.9% | 3.6% | 5.6% | 9.3% | -4.8% |
| IA £ Corporate Bond NR | 2.6% | 3.6% | 5.8% | 11.3% | 0.0% |
Activity
Despite a relatively quiet period for primary activity, the fund participated in several of the new issues that came to market over the quarter. On the duration side we were mostly neutral, before moving to a small short in April. Rates have remained fairly rangebound.
At the start of April we were able to buy Transurban, the largest toll-road operator in Sydney, which has assets across Australia and in other geographies.
May was the busiest month for issuance in the quarter – we bought transmission companies Northern Ireland Electricity and Southern Gas, as well as HSBC, IG Group and the RAC.
In June we bought into housing association Blend, along with interdealer brokerage firm TP ICAP, Associated British Ports and finally Bazalgette, the company behind London's super sewer.
We were also active in secondary markets. During the tariff weakness, there were a couple of irregularities where lower-risk names underperformed. Our best guess for what caused this was redemptions from passive funds as these high-quality names in investment grade are usually larger index components. We took advantage of this oddity, adding Haleon, GSK and Tesco, among others, before subsequently selling them after they outperformed in the rebound.
We bought back into two gas-related bonds, which we originally sold after they became richly valued. As they underperformed since we sold them, we added them back.
Ørsted was another addition. While it is not out of the woods yet, we felt the market had gone a bit 'over its skis' on the negative press surrounding the renewable energy provider.
In terms of sales, we exited Digital Realty Trust after it outperformed and bought back into housing association Places for People which had gone the other way. Housing associations have underperformed recently and we felt they were one of the few sectors to have benefited from Rachel Reeves' 2025 Spending Review, so we closed our underweight.
Outlook
The authority of the prime minister and his senior cabinet colleagues appears to have taken a serious blow following the botched welfare reforms. The ability to cut costs has been impaired and it’s unlikely the leadership team will try again in 2025.
The Office for Budget Responsibility also signalled a U-turn on its optimistic growth forecasts. The numbers never added up, but now the pretence is gone, we feel.
If the government can’t cut costs, it has to raise taxes. The fund is about 0.3 years short and, while that’s not a big position, we remain underweight longer-dated bonds. We expect the yield curve to steepen, which it has done recently.
Not all hope is lost. The Governor of the Bank of England has been talking dovishly about cutting rates. July is seasonally a very strong month for government bonds. Supply is also expected to be light over the summer. Higher taxes mean lower growth, which isn’t universally bad for bonds. We are not yet in a sovereign debt crisis.
I suspect the government would prefer to wait until the Budget before dropping the tax bombshell on us. But the bond market won’t give it that luxury. The government will have to signal what it is going to do, even if we must wait for the exact details in autumn. Restricting cash ISAs and reducing the tax-free withdrawal allowance on pensions isn’t going to touch the sides. My guess is that the top rate goes from 45% to 50%. But more taxes are required, I’m afraid.
Benchmarks: iBoxx £ Collateralized & Corporates Index; A widely-used indicator of the performance of sterling-denominated corporate investment grade bonds, in which the fund invests. IA £ Corporate Bond NR; A group of asset managers’ funds that invest in similar asset types to the 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.