Artemis SmartGARP UK Equity quarterly review, December 2023

Philip Wolstencroft, manager of the Artemis SmartGARP UK Equity Fund, reports on the fund over the quarter to 31 December 2023.

Philip Wolstencroft

Source for all information: Artemis as at 31 December 2023, unless otherwise stated. 

Fund objective 

The fund’s objective is to grow capital over a five-year period.

Performance

The fund returned 2.1% in the fourth quarter, behind its FTSE All-Share1 benchmark which made 3.2%. This was also behind its second benchmark, the IA’s UK All Companies2 sector, which was up 4.5%.

For full five-year discrete performance, please see below. Please remember that past performance is not a guide to the future.

Share price returns are broadly correlated with business performance. Companies that are profitable and grow deliver great returns, while companies without these characteristics will deliver lousy ones. We spend our time making sure that your fund owns the former.

In the past decade, the income plus earnings per share (EPS – a key measure of profitability) growth for the UK market has compounded at about 6.4% a year, compared with total returns of 5.3% – which broadly makes sense. The income plus EPS for our fund compounded at 12.4% (after fees), while returns have been closer to 7.4% a year, which seems too low.

The fund has done well, but not as well as it deserves given the performance of the underlying businesses it holds. These divergences tend not to last forever – either share prices rise sharply or business performance deteriorates. Our focus on improving companies means the former scenario is more likely. This has been the case for most of the past three years when the fund has done well.

In the past quarter, optimism broke out in the wider market and investors sold growing companies with low valuations to find some room for expensive stocks that had fallen in the previous year.

Top contributors to performance were:

  • Pharmaceutical AstraZeneca and consumer goods company Unilever, which we don’t own
  • Tobacconist Imperial Brands
  • Bank of Georgia

The biggest negatives for performance were:

  • Bank Standard Chartered
  • Promotional products supplier 4imprint
  • Spanish energy company Repsol

Activity

In the cases of 4imprint and Repsol, our inclination was to treat their poor share price performance as unwarranted as the underlying businesses continue to do well.

We bought the following companies, which remain cheap even though they have reported strong results:

  • Retailer Marks & Spencer,
  • Hospitality business Whitbread
  • Supermarket Tesco

We sold the following companies after analysts cut their profit forecasts:

  • Standard Chartered
  • Trading platform Hargreaves Lansdown
  • AIB (Allied Irish Banks)

Outlook

Markets have a habit of extrapolating recent trends and assuming they will go on forever. In the past decade or so, share prices have exaggerated these trends by more than is typical and so the range of valuations has become extreme. US technology companies have delivered high EPS growth, but even higher total returns, so price-to-earnings (P/E – a key measure of valuation) ratios have expanded. This means any reversal in profit trends is likely to be met with violent share price reactions. Investors had started to worry about this problem in 2022, but seemed to have forgotten about it by the last quarter of 2023. This provides (albeit uncomfortable) opportunities for active investors like us.

Whereas US technology companies have seen P/E multiples rise as share prices have outpaced EPS, our fund has seen P/E multiples shrink despite strong EPS growth. As such, I believe that our future long-term total returns are likely to be significantly higher than those of many other funds and markets. The combination of high growth and healthy income generation is a good predictor of future returns, helping to explain why I remain so positive.

Discrete performance, 12 months to 31 December 2023 2022 2021 2020 2019
Artemis SmartGARP UK Equity Fund 3.6% 6.3% 30.8% -7.2% 24.6%
FTSE All-Share TR 7.9% 0.3% 18.3% -9.8% 19.2%
IA UK All Companies NR 7.2% -9.3% 17.1% -6.3% 22.4%
Past performance is not a guide to the future. Source: Artemis/ Lipper Limited, class I accumulation units to 31 December 2023. 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.

1A widely-used indicator of the performance of the UK stockmarket, in which the fund invests. It acts as a ’comparator benchmark’ against which the fund’s performance can be compared. Management of the fund is not restricted by this benchmark. 
2A 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 this benchmark. 

Market volatility risk

The value of the fund and any income from it can fall or rise because of movements in stockmarkets, currencies and interest rates, each of which can move irrationally and be affected unpredictably by diverse factors, including political and economic events.

Currency risk

The fund’s assets may be priced in currencies other than the fund base currency. Changes in currency exchange rates can therefore affect the fund's value.

THIS IS A MARKETING COMMUNICATION. BEFORE MAKING ANY FINAL INVESTMENT DECISIONS, REFER TO THE FUND PROSPECTUS, AVAILABLE IN ENGLISH, AND KIID/KID, AVAILABLE IN ENGLISH AND IN YOUR LOCAL LANGUAGE DEPENDING ON LOCAL COUNTRY REGISTRATION, FROM WWW.ARTEMISFUNDS.COM OR WWW.FUNDINFO.COM.

ARTEMIS DOES NOT PROVIDE INVESTMENT ADVICE ON THE ADVANTAGES OR SUITABILITY OF ITS PRODUCTS AND NO INFORMATION PROVIDED SHOULD BE VIEWED IN THIS WAY. ARTEMIS ONLY PROVIDES INFORMATION ABOUT ITS OWN PRODUCTS AND SERVICES AND DOES NOT ADVISE INVESTORS. SHOULD YOU BE UNSURE ABOUT THE SUITABILITY OF AN INVESTMENT, YOU SHOULD CONSULT A SUITABLY QUALIFIED PROFESSIONAL ADVISER.

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 www.artemisfunds.com.

The fund is an authorised unit trust scheme. For further information, visit www.artemisfunds.com/unittrusts.

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.

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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.