Fund in focus: Artemis Global Select
Posted by Liz Rees in Fund and industry updates category on 23 Apr 20
To achieve long-term growth Artemis Global Select
invests in quality companies with strong positions in their markets and excellent balance sheets.
To reduce risk and protect capital, holdings are limited to 2.5% of the portfolio in any company and 25% in a particular theme.
Investment philosophy & process
The managers believe the best way to capture undervalued opportunities is to look beyond those businesses getting all the attention and in turn whose share prices have risen strongly. Instead, they think less glamorous companies are often a better way to generate returns.
Manager Simon Edelsten likens this to the 19th
century gold rush when very few miners got rich but the suppliers of ‘picks and shovels’ (as well as clothing and food) reaped handsome profits.
The investment process is designed to incorporate global growth trends and find companies that will benefit. Detailed research is conducted on evolving themes which currently include automation, ageing demographics and the transition to a low carbon economy.
Valuation is at the core of the process. The managers avoid companies they think are over-hyped and seek evidence that new technologies are enduring, have high barriers to entry and are profitable.
Sustainability is an important consideration and the fund earns the highest 5 globe rating from Morningstar. The fund has no investments in fossil fuel companies due to the risks from factors outside their control.
Performance & costs
From launch on 16th
June 2011, with Edelsten and Alex Illingworth at the helm, to 10 April 2020, the fund has returned 11.2% p.a. on an annualised basis. This compares with 7.9% p.a. for the IA Global peer group and 9.5% p.a. for the MSCI ACWI benchmark*.
We consider the OCF (Ongoing Charges Figure) of 0.9% to be reasonable versus the peer group. Transaction charges are 0.63%, reflecting higher costs in some overseas markets. Artemis absorbs any research costs.
The fund is well-diversified across countries and sectors and is constructed with a blend of quality growth and asset-backed companies (such as utilities).
Following the coronavirus outbreak, the managers have re-assessed the strength of the balance sheets of all their investments. They have reduced US exposure to below 50% of the portfolio and increased Asia to around a quarter.
Information Technology and Healthcare are currently the largest sector exposures accounting for over 40% of the fund. The largest holdings are Merck, Thermo Fisher Scientific and Microsoft.
A recent purchase is China Tower, a Hong Kong listed company which provides masts for telecommunications. This aims to capture the growth in the roll-out of 5G networks.
Another favoured theme is the transition to a low carbon world, which makes up around 9% of the portfolio. Holdings which could benefit include Örsted, a Danish wind farm operator and Iberdrola, a Spanish electricity distributor.
Coronavirus has cast a cloud over the outlook for the global economy and stock markets and as a result the managers have adopted a cautious stance. They expect a long and deep recession, with persistently high unemployment, despite central bank intervention.
Some holdings will inevitably suffer from the restrictions on travel and deferred spending but good cash-flow generation and the scope to cut variable costs should mitigate the impact. The team have conviction that their approach should help preserve capital and potentially deliver real returns.
Companies with their desired characteristics of predictable growth and low debt should prove resilient in recession. A few may even benefit, for example Chinese gaming and social media company Tencent.
We like the clearly defined and disciplined process followed by this team and the intelligent insight of the managers who invest their own money in the strategy.
It is encouraging that the cautious, valuation driven approach has, to date, delivered steady but consistent outperformance in both bull and bear markets.
* FE Analytics, total return in pounds sterling at 10/4/2020