The fund aims to deliver long-term capital growth by investing in companies listed in the United States of America. There is no defined style bias and the portfolio is tilted towards areas that the manager expects to outperform. It is a go-anywhere fund so will include mid and small sized companies if they offer sufficiently attractive prospects.
Cormac Weldon established his reputation during a 16 year stint at Columbia Threadneedle where he headed up the US team. He moved to Artemis in 2014 and launched the Artemis US Select fund
, adopting the same strategy he employed successfully on the Threadneedle American Select fund.
Most of his team moved with him to Artemis and further resources have been added. The other team members are fund manager Stephen Moore, along with five analysts.
Investment philosophy & process
Weldon believes that by identifying mispriced stocks he should be able to outperform the market over the economic cycle. The strategy is primarily driven by fundamental company research but the team also undertakes rigorous analysis of economic data to help them understand cyclical and thematic trends.
There is a preference for companies with growth characteristics although those deemed to offer exceptional value are also considered. The emphasis on quality should prove beneficial in an economic downturn.
Ideas may be generated by company meetings and 3rd
party research which is followed up with further analysis by the team to construct an investment hypothesis. Detailed company screening combined with wider social, economic and thematic research produces a high conviction portfolio of 40-60 best ideas. Despite this concentration, it has demonstrated lower volatility than many of its peers.
The analysts examine business models, financial strengths and weaknesses, and management quality to derive their own earnings forecasts and valuation for companies. They assess the impact of various scenarios on a company’s share price and only invest if the potential rewards significantly exceeds the potential loss.
To alleviate risk, positions are kept within 5% of their respective index weight whilst sector deviations remain within 10%.
Performance & Costs
Performance has been impressive under the tenure of Cormac Weldon, although past performance is not a guide to the future. Since launch in September 2014 it has delivered a total return, in sterling terms, of 129% compared with 94% for the S&P 500 (source: FE Analytics at 205/07/2019). It has consistently been in the top quartile in its peer group (IA North America).
The OCF (Ongoing Charges Figure) of 0.87% is reasonable versus the peer group. We think this is good value for an active strategy from a highly regarded team which that conducts macroeconomic research as well as in-depth company analysis.
Artemis will be absorbing the costs associated with their research, which should slightly reduce the overall fee paid by investors.
Economic data points to a slower rate of expansion in the US economy rather than a sharp downturn or recession. Weldon expects earnings growth to resume in the second half of this year, if all-out trade wars are avoided, but favours businesses whose growth should be relatively independent of the wider economy.
Weldon believes the threat of regulatory oversight on digital technology companies has left some looking oversold which presents selected opportunities. However, he remains wary of the impact of trade tariffs on technology hardware shares. He is also mindful that a Democrat administration could be negative for healthcare companies.
In anticipation of slowing growth, Weldon has positioned the portfolio accordingly. He favours companies with predictable earnings and low debt. The common theme is a strong competitive position and the ability to benefit from secular trends.
An example of an investment in quality growth is Crown Castle, which operate towers for networks of cell phones and is well-placed to benefit from the rollout of 5G in the US. Another is Progressive Corporation, an auto insurance company that uses technology to offer better pricing to its customers. This is helping it to grow faster and more profitably than its competitors.
Weldon also likes payment companies and credit card companies. Considerable growth is forecast in electronic payments which should underpin earnings growth in an industry with relatively high barriers to entry. The fund currently has holdings in Visa, PayPal and Worldpay.
Attention to valuations, means the portfolio is significantly underweight in technology and overweight in financial services and industrials. While acknowledging the wide gap between growth and value, Weldon does not believe the economic backdrop is conducive to an aggressive tilt towards deep value.
While conceding that few shares look exceptionally cheap, Weldon is finding value in house-builders and semi-conductor companies. A recent purchase is Qualcomm, which both makes semiconductor chips and licenses its technology for use in smartphones. The fund bought the shares after they de-rated on accusations of anti-competitive practices. Subsequently, a beneficial settlement with Apple, has led to a recovery in the share price.
Weldon and his team have designed a clear and repeatable strategy which has proven its worth over time. He also draws ideas from broker’s analysts operating on the ground across the US. Although not a large team, this does not stop them travelling widely and they work well together. Furthermore, Artemis has a number of global portfolios and Cormac can draw on their research efforts. Morningstar have awarded the fund a bronze rating.
The controls in place to limit downside risk and the lack of any particular style bias may appeal to investors who want to capture the growth potential in the US market without too much volatility.
Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Nothing in this article is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment.