Artemis Global Income Fund update

Source for all information: Artemis as at 31 March 2025, unless otherwise stated.

Objective

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

Performance

After driving the performance of global stockmarkets in late 2024 and early 2025, the US has more recently encountered some potential challenges. In January, the introduction of DeepSeek – a Chinese competitor to ChatGPT that was allegedly developed at a lower cost¹ – questioned the long-held view that American companies reign supreme in technology and AI (artificial intelligence).

Latterly, talk of tariffs (a tax on imports) on some of the US's largest trading partners resulted in sentiment falling. The gold price rose significantly, reflecting investors' concerns around a deterioration in the global economy.

US index the S&P 500 had a poor quarter. Its largest technology companies, which have been so dominant in global stockmarkets for more than a decade, fell sharply.

Meanwhile, Europe saw a significant quarterly outperformance of the US². Aerospace & defence was strong, boosted by Germany’s decision to unlock enormous amounts of spending in this area³.

Against this backdrop, the fund made 7.6% over the quarter, compared with a loss of 4.3% from its MSCI AC World index benchmark⁴ and a flat return (0.0%) from its IA Global Equity Income peer group⁵.

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

Contributors

During the quarter, expectations rose that government spending on aerospace & defence area will increase significantly. As a result, the order books of the defence companies that we hold (Rheinmetall⁶, Hanwha Aerospace⁷, BAE Systems⁸ and Mitsubishi Heavy Industries⁹) grew substantially, as did profits and dividends.

Banks also did well, particularly in Europe (Commerzbank and CaixaBank). They continue to benefit from the impact of high interest rates on net interest margins (the difference between the interest they receive on loans and what they pay on customer deposits).

Our underweight (below average) position in technology contributed to performance from a relative point of view as the likes of Tesla and Nvidia suffered heavy falls.

Detractors

Shares in US construction firm Fluor were down significantly, having been caught in the AI sell-off (Fluor builds data centres for the AI providers among a range of other large and complex projects), while weak US economic data suggests a tougher environment in the near term. Fluor’s long-term prospects remain attractive, but we have been trimming the position of late.

Another significant detractor was electronics manufacturer Hon Hai, which sold off on concerns around AI demand and tariffs (the company plays a significant role in Apple’s supply chain). The company is one of many positions that we are debating at present, but in our view it is on a relatively low valuation with a healthy dividend yield and a strong balance sheet.

General Motors shares sold off along with the automobile sector as a result of tariff concerns (it has a large manufacturing presence in both Mexico and Canada). However, profits have thus far remained strong.

We will continue to monitor policy developments with interest, but still believe General Motors to be relatively well placed to increase shareholder returns.

Activity and positioning

We have been boosting our allocation to core income (mature companies with high and stable dividend yields, but low prospects for dividend growth) by adding to pharmaceuticals AbbVie and AstraZeneca and oil & gas company Hess Midstream. In addition, we started building positions in pharmaceutical Bristol Myers Squibb, Japan Tobacco and British American Tobacco. Our exposure to 'core income' has increased by about 7% from recent since-inception lows.

The increase to our core income allocation was funded by reducing exposure to some economically sensitive shares such as construction companies CRH and Komatsu.

Outlook

Since ‘Liberation Day’ (2 April), many stockmarkets have lurched lower as investors have attempted to reconcile the effects of sweeping US tariffs on the majority of its trading partners. Despite postponements and reductions to most tariffs since then, uncertainty still looms large. We would offer the following opinions at this stage:

1. The probability of recession has increased: Corporate uncertainty is much higher, with the returns that companies can expect from new investments highly questionable, given a more unpredictable environment. As a result, corporates are less willing to commit, while consumer confidence is also likely to fall (having already done so in the US). The big question we are weighing as a team is whether this leads to a recession, as that would damage corporate profits and share prices.
2. We are likely at or past peak tariffs: Uncertainty is always challenging for markets, and this is amplified when valuations are high. Despite weak stockmarkets, it was likely the disorder in the bond market – with Treasury (US government bond) yields climbing despite the S&P 500 selling off – that forced US President Donald Trump to announce the 90-day suspension to reciprocal tariffs. Bond yields are inversely correlated with prices.
3. This is more evidence of regime change: Trump has aggressively rolled back the norms that have underpinned global trade over the past 30+ years. In our view, tariffs look problematic for global platforms in particular, with the Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) good examples of these sorts of businesses. Take Apple, which designs products in California and assembles them in Taiwan with Chinese components before selling them all around the world with little friction. The viability of this sort of model looks more challenged going forward. ‘National champions’ may be better equipped to weather this sort of environment; that is to say businesses that produce and sell their products domestically and are therefore relatively well insulated from tariffs. None of this will be good for stockmarkets, with supply chains becoming more inefficient.

What are we doing in the fund?

After a strong run of performance, recent days and weeks have been challenging. Generally speaking, the fund is positioned for a de-globalising world, but it has not been positioned for a recession. Some of the areas that have driven performance over the last few years have sold off materially.

Following strong first-quarter performance, we have been boosting our allocation to 'core income' over the last two months to take some risk off the table in the face of increased threats to economic growth. Nonetheless, the portfolio retains a significant allocation to ‘risk’, the majority of which is through financials, which in our opinion could potentially deliver double-digit annual cash returns and look ready to withstand a recession. We believe that these utility-like returns are sustainable; this view will be tested if there is a tariff-induced recession.