Artemis US Smaller Companies Fund update

Cormac Weldon and Olivia Micklem, managers of the Artemis US Smaller Companies Fund, report on the fund over the quarter to 30 June 2025.

Cormac Weldon

Source for all information: Artemis as at 30 June 2025, unless otherwise stated. 

Three months Six months One year Three years Five years
Artemis US Smaller Companies Fund 8.5% -11.5% 0.3% 30.8% 44.0%
Russell 2000 NTR (WHT 15%) GBP* 2.1% -10.3% -0.8% 17.8% 45.2%
IA North America Smaller Companies average 2.1% -11.4% -2.5% 16.3% 43.2%
Past performance is not a guide to the future. Source: Lipper Limited/Artemis to 30 June 2025 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.*As at 31 Oct 24 the benchmark changed to Russell 2000 NTR (WHT 15%) GBP. Returns up to 31 Oct 24 reflect those of the Russell 2000 TR.

Review of the quarter to 30 June 2025

The second quarter of 2025 was marked by an extraordinary divergence between macroeconomic turbulence and market performance. Despite one of the most tumultuous macro environments in recent years, characterised by the introduction of sweeping US tariffs, geopolitical escalation in the Middle East and growing concerns over US fiscal sustainability, global equities delivered strong returns. The S&P 500 climbed 10.8% (in dollar terms), closing the quarter at an all-time high.

It began with a sharp sell-off following the announcement of "reciprocal" tariffs by the US on 2 April. However, markets rebounded strongly after the US administration delayed enforcement for non-retaliating countries and eased China-specific tariffs in May. Investor sentiment was further buoyed by robust US economic data, including April’s jobs report and softer-than-expected inflation.

The US fiscal picture came into sharper focus, as Moody’s downgraded the sovereign credit rating and long-dated Treasury yields edged higher. The 30-year yield closed the quarter at 4.77% as markets digested the potential implications of renewed tax-cut legislation and persistent deficits. Despite these macro headwinds, the resilience of economic activity, combined with the absence of any tariff-induced inflation, provided a supportive backdrop for equities. However, the US dollar saw broad-based weakness, declining -7.0% in Q2 and recording its worst H1 performance since 1973.

At quarter end, the Russell 2000 had almost returned to the level at which it entered the year. Technology and industrials were the main drivers of the recovery, with the only negative sectors in dollar terms being real estate and consumer staples. Yet the story was quite different for UK investors, with the index only returning 2.1% in sterling terms for the quarter, leaving year-to-date returns at -10.3%. The figures for the Artemis US Smaller Companies Fund were 8.5% for the quarter and -11.5% for the year to date.

Positives

Comfort Systems: We added to the building-and-service provider on weakness caused by DeepSeek and tariffs. Management cited strong demand persisting across tech/data centres, healthcare and semi fab (the factories where semiconductors are made) markets, with no current signs of slowdown in capex or customer activity. The company continues to see robust demand for skilled labour such as electricians, welders and pipefitters, and maintains good visibility into this year and parts of the next two. The pricing environment remains favourable and its scale provides a procurement edge, particularly in an environment where tariffs persist.

Axon: The maker of Taser and police body-cameras continues to perform extremely well. Its suite of AI products including AI assistance, document drafting and real-time translation for officers in the field will likely continue to experience tailwinds with a more intense focus on border security under Trump. Draft One (the AI police-report drafter) is the fastest-adopted software product in the company’s history.

Mirion Technologies: The radiation detection, measurement and monitoring business is reporting strong order growth, driven mostly by the existing nuclear base, with $300m to $400m of large project awards still pending. Overall, the print supports the long-term growth case, order momentum is building and the risk/reward remains attractive.

Construction Partners: The infrastructure business continues to make sensible, accretive acquisitions alongside organic growth.

Core Scientific: The company builds and operates data centres, primarily for Bitcoin mining, but also for leasing to third parties which require additional computing power, particularly AI workloads. Towards the end of June, news was released that Core Scientific was in talks to be acquired by CoreWeave, an operator in a similar field which is looking to increase its data-centre footprint.

Negatives

Bellring Brands: We sold out of the premier protein-shake producer as we became concerned about competition. While current trends remain strong, there was increasing evidence of the bear (down) case from higher competition/slowing growth.

Globus Medical: The company reported temporary disruptions in its musculoskeletal segment and slower-than-expected robotics deal closures. While some headwinds will persist, most operational issues have been resolved and full-year guidance was reaffirmed. Despite trimming estimates to reflect near-term uncertainties and a more conservative multiple, the long-term upside remains attractive, supported by cost-cutting opportunities, stabilisation in the robotics pipeline and ongoing share buybacks which are helping to restore investor interest.

First Industrial Realty: Funds from operations came in below expectations for the real estate investment trust, but it reaffirmed full-year guidance. Whilst a miss, there were elements to be positive about: it commands very attractive cash rent spreads of 41% and it has undertaken a healthy amount of investment-related activity during the quarter.

CBIZ: The provider of professional services, including accounting, benefits and insurance, reported towards the beginning of the quarter. The market took issue with its decision to lower the bottom end of its guidance for full-year revenue.

Purchases

On the purchases side, we added Crane, Primoris, Quest Diagnostics and topped up our holding in Jefferies.

Sales

As mentioned, we sold out of Bellring Brands, harvested profits in Axon and Comfort Systems and reduced our holding in Natera on a more balanced risk/reward outlook.

Outlook

With smaller companies in the US having borne the brunt of the turmoil during the first half of the year, we now seem to be in a more supportive environment. Fears of the sharp deterioration in ‘soft’ economic data feeding into hard data have been unfounded. The US economy is a remarkable thing.

Looking forward, there are reasons to be optimistic with regards to smaller companies in the US. They are relatively cheap, earnings are set to accelerate, they should benefit from a huge amount of domestic spending and they provide a differentiated offering to what one would obtain though exposure to the S&P 500.

As at 31 Oct 24 the benchmark changed to Russell 2000 NTR (WHT 15%) GBP. Returns up to 31 Oct 24 reflect those of the Russell 2000 TR. The Russell 2000 is a widely-used indicator of the performance of US smaller companies, in which the fund invests. IA North American Smaller 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.

Cormac Weldon

Manages:

US equity strategy

Cormac has managed Artemis’ US equity strategies since launch.

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Olivia Micklem

Manages:

‘US Smaller Companies’ strategy

Olivia co-manages Artemis’ ‘US Smaller Companies’ strategy

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