How are funds run?

Investment processes

Broadly, investment funds can have one or two investment processes. They can either be:

• ‘Actively’ managed, which means the investment manager or managers select what they consider to be the best or most appropriate shares or bonds in line with a fund’s objective and investment policy, or
• ‘Passive’, which means the fund replicates or tracks all the investments in a particular stockmarket or other index, for example the FTSE.

Artemis offers only ‘active’ funds.

In an active fund, the manager has an investment strategy or process which describes the kind of investment they are looking for.

In the Artemis Income Fund, for example, the managers will focus on a company’s free cashflow yield – the amount of cash left over after everyone it owes money to (staff wages, suppliers and so on) has been paid – as they believe this is the most important factor in determining its ability to pay a sustainable and growing income.

Objectives and investment policies

All investment funds have a stated objective and investment policy, which can be found in the fund’s prospectus and Key Investor Information Document (KIID).

Fund objective

The objective can be something simple such as to grow the capital value of the investment over a certain period of time, or it could be to generate an income for investors, or it could be a combination of income and capital growth.

Funds can also have more specific investment objectives, for example to investing in particular geographical areas, such as the USA, Europe, emerging markets.

Investment policy

A fund’s investment policy expands on the fund objective by telling investors what the fund invests in, such as shares or bonds, what parts of the world it invests in, or it may describe particular industries or sizes of companies it focuses on.

The investment policy will also include any limitations on where or what the fund can invest in, and whether it uses investment contracts known as derivatives, and if it does, what the purposes of using derivatives .

• A share refers to an equal portion representing part-ownership of a company or fund. In relation to a fund, investors purchase shares which represent their interest in the underlying assets of the fund. The changing price of the shares reflects the rise and fall in value of the underlying assets of the fund.
• A bond can be issued by either a company or a government and is a way of raising capital. Investors buying a bond are effectively lending money to the issuer of the bond (ie- the company or government). Most bonds will have a fixed term, at the end of which the investor will receive the original issue price, although some bonds (known as 'perpetual bonds') have no fixed maturity date. Interest is normally paid by the issuer to the investor during the lifetime of the bond.
• Derivatives are financial instruments whose value is derived from that of another investment. The term applies to products such as futures, options and warrants. Derivatives can be used for investment reasons (ie- to try to make money) or to limit risk, reduce costs and/or generate additional income. Investing in derivatives also carries risks, however. In the case of a ‘short’ position, for example, where the fund aims to profit from falling prices, if the price of the underlying asset rises in value, the fund will lose money.

SmartGARP^®

Artemis manages a number of funds which include the word ‘SmartGARP’ in their title.

‘GARP’ is an acronym which stands for Growth At a Reasonable Price. It refers to a recognised process for assessing the value of a company’s shares.

Artemis has a unique systematic approach, termed SmartGARP. It is a proprietary software tool, developed and refined over the last 30 years, that combines a range of fundamental company data, behavioural and market insights into a systematic framework, which makes it easier for fund managers to assess the relative attractiveness of companies.

In effect, it acts as a stock-screening tool that processes large quantities of data about companies, enabling Artemis’ fund managers to focus on companies that meet selected criteria.

At the same time, we recognise that all quantitative stock selection and risk management processes have their inherent limitations. As a result, we think it is essential that the fund manager complements them with their own judgment to carry out due diligence on individual companies and to ensure a broad diversification of portfolio risks.

Derivatives

Derivatives are financial instruments whose value is derived from that of another investment.

The term applies to products such as futures, options and warrants.

Derivatives can be used for investment reasons (ie to try to make money) or to limit risk, reduce costs and/or generate additional income.

Investing in derivatives also carries risks, however. In the case of a ‘short’ position, for example, where the fund aims to profit from falling prices, if the price of the underlying asset rises in value, the fund will lose money.

Derivatives are legal contracts and there are rules and regulations on how they are managed in individual .

This information is intended to provide you with help and guidance about investing generally and about investing with Artemis. It is not a marketing communication and should not be used to make investment decisions. You should always refer to the relevant fund prospectus and KIID/KID before making any final investment decisions.

Artemis does not provide investment advice on the advantages or suitability of its products and no information provided should be viewed in this way. Should you be unsure about the suitability of an investment, you should consult a suitably qualified professional adviser.