Highlights from the annual Artemis investment conference held on February 6, 2014, by Jake Moeller.
Reuters
Over the years “An Evening With Artemis” has grown to be a notable event in the calendar of U.K. IFAs and fund researchers. As well as the usual insights from founder Mark Tyndall and income manager Adrian Frost, this year Artemis showcased four funds. This article reviews the first two:
Artemis Global Income Fund
Despite his youthful countenance, fund manager Jacob de Tusch-Lec is a highly experienced and passionate fund manager with an exceptional grasp of economics and markets. Within Artemis his expertise has been applied to a number of funds, and he has been managing the Global Income Fund since its launch in July 2010.
Global income is a fledgling sector now becoming larger as canny fund groups seek to capitalise on investor demand for yield. There are now around 30 funds in the Lipper Equity Global Income Funds sector, with a significant proportion of those being launched since 2009.
The track record of this fund is impressive. It scores a combined 14/15 in three Lipper Leader categories (Consistent Return, Total Return, and Preservation) over three years, and it has outperformed over 30% above the sector since its launch. Currently it is yielding 4.0%.
In portfolio composition the fund has been designed to avoid overlap with Artemis UK Income Fund; and Jacob eschews stocks such as Nestlé, Shell, Vodafone, and Microsoft (commonly seen in global income portfolios) in favour of less popular mid-cap names such as Silverlake and RTL Group. Overall, there is a considerable exposure (42%) to mid-cap stocks compared to its peers, which renders it the second most volatile fund in the sector over three years and susceptible to size rotation back to large-caps.
A significant feature of this fund is its low relative weighting to the U.K. compared to its peers (12% compared to the peer average of 16%). It is also considerably overweighted to Europe (+17%) and underweighted to the U.S. (-23%). Jacob notes that the median price/earnings ratio for the S&P 500 Dividend Aristocrats is at 23x, which makes chasing dividends in the U.S. currently an expensive proposition.
Despite recent strong performance, Jacob remains sanguine about the outlook for equities generally, noting the normalisation of bond/equity correlations and further support from bond fund net outflows. He believes the equities beta play is over, and in this “alpha market” he is positioning himself more cyclically and looking for an increase in M&A activity and Capex.
SmartGARP–Artemis Capital Fund, European Growth Fund, and Global Growth Fund
For the romantically disposed investor Artemis’s SmartGARP range offers very little. This is a purely mechanical investment process that was started by Phillip Wolstencroft from his days at Merrill Lynch and subsequently was developed by both him and Peter Saacke.
Put simply, SmartGARP is driven by measuring quantitative value and growth metrics (e.g., ROE, price-to-book ratio, etc.) in conjunction with revisions (changes to earnings-per-share estimates) momentum and an accounting metric. This screen then scores the stocks, with the best scorers going into the portfolio. For the Global Growth Fund the asset allocation is automated also, with the countries weighted according to their proportional SmartGARP stock output.
“SmartGARP Works!” was the claim of this presentation, and the figures presented herewith appear to validate this for the funds since inception:
However, as with many automated strategies SmartGARP faltered in 2008. To be fair to Artemis, the fund managers have addressed this up front and are quite candid about what went wrong and why. Since 2008 the value metric has been adjusted and is now a flexible input. The fund naturally has a value bias, and the managers have been increasing the value factor over the last 12 months.
SmartGARP is currently rating stocks such as Lloyds Bank, easyJet, BP, and BT; underweighting the U.S.; and overweighting emerging markets with particular emphasis on China.
Regardless of your view on automated fund management styles—where the calibration of the inputs is at the fund managers’ discretion, a human and possibly fallible element is introduced to the process. One unintended consequence of SmartGARP is that it is definitely good for the environment–the managers do not undertake any company visits, thereby keeping their carbon footprint to a minimum.
