Artemis SmartGARP European Equity Fund update
Philip Wolstencroft, manager of the Artemis SmartGARP European Equity Fund, reports on the fund over the quarter to 30 June 2025.
Source for all information: Artemis as at 30 June 2025, unless otherwise stated.
Review of the quarter to 30 June 2025
The Artemis SmartGARP European Equity Fund had a good Q2, rising 13.8% while its FTSE World Europe ex UK index benchmark was up by 6.1%. Over one, three, five and 10 years the fund is pretty much top of the pops. Since we launched it in 2001, it has compounded at 8.9% per annum after fees, compared with 6.8% per annum from the market and 6.4% per annum from the average IA Europe ex UK fund. This annual outperformance of 2.1 percentage points is broadly in line with the excess growth and income that our stocks have delivered over the years.
SmartGARP Europe vs Benchmark
Returns have been high of late. Having lagged the strong growth in fundamentals in the early 2020s, share prices are now catching up. Through to the end of 2017, the fund had on average traded on valuations that were 20% cheaper than the market. In the subsequent few years, we ended up with a portfolio that was at half the market multiple.
Today the discount has narrowed to nearer 35%, so we are probably just over halfway through the fund's re-rating from being stupidly cheap to pretty cheap. In the meantime, SmartGARP’s ability to uncover stocks that grow about 2 percentage points per annum faster than the market seems to be undiminished. The future still looks bright.
| Three months | Six months | One year | Three years | Five years | |
|---|---|---|---|---|---|
| Artemis SmartGARP European Equity Fund | 13.8% | 32.1% | 33.0% | 105.4% | 138.3% |
| FTSE World Europe ex UK | 6.1% | 14.3% | 9.9% | 49.1% | 64.7% |
| IA Europe excluding UK Average NR | 7.6% | 13.4% | 8.9% | 43.6% | 54.6% |
The fund has quality characteristics (return-on-capital-type measures) that are broadly similar to those of the market. However, its holdings upgrade their profit forecasts more often. This means that the actual growth in fundamentals continues to beat that of the benchmark.
To give an example, our five largest stocks have raised their earnings per share (EPS) forecasts by 7% in the past three months, whereas the five largest stocks in the index have cut their EPS forecasts by 1.7% over the same period. This combination of positive surprises and low valuations has helped the fund to perform well.
Contributors/detractors
Our worst performer over the past three months (energy company Equinor) cost us almost 0.4 percentage points of performance (oil prices were weak). However, four stocks more than made up for this poor performance on their own: Société Générale (a French bank), Lottomatica (an Italian lottery provider), Betsson (a Swedish online gaming company) and Italgas (an Italian gas network). So, a diverse bunch of winning stocks by sector and country. The common themes were low valuations and upgrades. We also benefitted from our decision not to own luxury retailer LVMH, which was characterised by the opposite set of characteristics.
We did not own Société Générale before mid-February of this year. It is now our largest position and has been one of the biggest contributors to performance year-to-date. When the data changes, we change our portfolios and are not afraid to do so dramatically.
Activity
Other large purchases in the past few months have included Fresenius Medical Care, TUI, Engie and Italgas. Once again, the common themes were value and upgrades. The chart below illustrates the EPS forecasts of Fresenius against the European market; having fallen for a number of years, it seems that business is improving, but the market has been slow to realise this. The company recently had a capital markets day. Stockbroker analysts begrudgingly raised their profit forecasts and we keenly bought the shares.
Fresenius Medical Care vs MSCI Europe
Inevitably we make mistakes in our purchases. We tend to cut our losses sooner rather than later and in the past few months we sold out of Ahold Delhaize (due to price wars among food retailers), Equinor (on weaker oil prices), Bic and Evonik (on downgrades).
Outlook
We believe the spread of valuations within European equity markets has got further to narrow – it is still wide and value stocks are delivering pleasant surprises. As such, our value tilt should continue to give us a tailwind, as should our natural tendency to have a high exposure to companies announcing positive surprises.
The fund has a return on equity that is similar to that of the market. However, it sits on a prospective P/E that is 37% below that of the index and has seen upgrades to profit forecasts at a time when those of the benchmark are either flat or down.