Artemis Income Fund update

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

Fund's objective

The fund aims to grow both income and capital over five years.

Performance

The fund rose by 9.2% during the quarter, compared with 4.4% from its first benchmark, the FTSE All-Share index¹, and 7.8% from its second benchmark, the Investment Association UK Equity Income² sector average.

For the past five calendar years of performance, please see the table below

Shares sold off sharply in the wake of ‘Liberation Day’, when Donald Trump announced tariffs (taxes on imports) on all the US’s trading partners, only for the S&P 500 to record its fastest ever comeback from a 15% drawdown³, ie a fall from its peak value, with investors appearing to focus on improving sentiment around trade negotiations rather than the debt created by the One Big Beautiful Bill Act. 

As geopolitical tensions continued to escalate, worries about debt sustainability manifested themselves in rising US government bond yields (meaning the cost of borrowing is rising) and a falling dollar, which had its worst first half of the year for more than five decades⁴.

The UK economy grew, helped by the announcement of a trade deal with the US⁵. However, most recently, welfare-reform issues have highlighted the challenge of pushing through spending cuts, which we believe will increase the probability of more tax rises in the next Budget. 

We have argued for some time that several of our companies are vulnerable to being bought out by speculators and in June, scientific instrument maker Spectris⁶ became the target of a bidding war between two private equity houses. BP⁷ also rallied mid-June around rumours that Shell was preparing a bid. Given what we see is the undervaluation of much (but not all) of the UK market, it is reasonable to expect there is more activity to come.

Positives

Tesco shares have recovered all their losses incurred in the wake of Asda’s declaration of (price) war in March, as it committed to cut prices in a last-ditch attempt to stem a long-running decline in market share⁸. Conversely, Tesco has continued to gain share, with the latest industry data suggesting it controls more than 28% of the market9. We believe this shows Tesco’s proposition is resonating with a wide range of consumers. 

Clothing retailer Burberry’s turnaround continues in earnest¹⁰. Its new strategy is centred on re-focusing the brand on its highly successful core attributes of protection from the weather, Britishness/the Royal Family and Burberry’s iconic check. Recent marketing campaigns have landed well with consumers¹¹, shares have doubled from their post-Liberation Day low in April, yet the company’s market cap remains just £4.5bn (Burberry is also nearly debt-free excluding leases)¹². We believe annual revenues can recover to 2023 levels.

Negatives

Education and learning provider Pearson’s share price performance has been subdued in 2025, constrained by sterling strength (most of its revenues are in dollars) and concerns around US higher education funding, prompting earnings downgrades13. In late June, Pearson announced a deal with Google (having recently announced similar partnerships with both AWS and Microsoft) that will allow it to use Google Cloud for product development purposes and Google to use Credly (a Pearson business) for certification¹⁴. We believe partnerships like this can help Pearson to improve the cadence of its innovation and product launches and ultimately further expand its addressable market and profit opportunity. 

London Stock Exchange Group (LSEG) has seen shorter-term earnings downgrades from unfavourable currency moves¹⁵. We believe Tradeweb (in which LSEG has about a 45% stake¹⁶), is well placed to benefit from the digitalisation of fixed income trading. 

The falling oil price hit BP shares¹⁷. However, we feel they look attractive from a risk/reward point of view, thanks to the spectre of M&A and continued share buybacks¹⁸.

Purchases

We have been trimming some of the better performing names (the likes of Tesco, insurer Aviva and clothing retailer Next) and recycling this capital into other areas (some examples would be real estate investment trust SEGRO, brewer Whitbread and property developer Berkeley Group) where we feel valuations and the risk/reward trade-off are more attractive.

Sales

We exited our holding in video game company Nintendo. We believe software and the monetisation of Nintendo’s world class bank of intellectual property are accounting for a growing proportion of group sales. Nevertheless, Nintendo’s valuation has increased substantially¹⁹. As such, we thought it prudent to exit the position, though the company will remain on our watchlist. 

Outlook

The outlook remains as difficult as ever to predict so we focus on where we believe our skills lie: assessing individual investments and the risk/reward trade-off they offer.

We see robust performance with the ability to be competitive from the majority of the companies we invest in. This means a healthy free cashflow (the amount of money left over after all liabilities have been met) that almost twice covers the dividend the fund can pay out, which we predict will be in the mid-single digits this year.

In recent months, some areas of the portfolio that have previously underperformed have begun to deliver strong returns, whereas a few of our longer-term winners have been more muted. To us, this is an advert for style-agnostic, active portfolio management: investing in companies providing a diversified collection of cashflows.