Artemis Global Income: December 2024 fund update

• Jacob De Tusch-Lec is a contrarian investor and has managed the fund since launch in July 2010

• The fund is separated into three buckets, each with its own unique income traits

• Performance has struggled in recent years, but over the past 12 months, benchmark-relative returns have improved

• The fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

Artemis Global Income aims to deliver income and growth by investing in companies from around the world. Income is generated through a variety of sources, from the more mature steady companies to lower quality, higher yielding companies. A focus on companies perceived to be undervalued is the overriding style which means the fund could work well alongside more growth-focused funds or add diversification to a UK-centric income portfolio.

We believe this fund offers something a little different to other global income funds. De Tusch-Lec’s stayed true to his philosophy during tougher periods, but he will also be flexible and tweak how he invests depending on market conditions. However, whilst the fund has tended to provide a higher level of income, it has also been more volatile than most of its peers in the IA Global Equity Income sector.

Manager

Jacob De Tusch-Lec has managed the fund since launch in July 2010. After joining Artemis in 2005, he spent several years managing UK equities prior to his transition into the global universe. He started his career at BankInvest before moving to Merrill Lynch where he served as vice-president on a pan-European equity strategy.

He’s supported by co-manager James Davidson, who joined in 2018 from JP Morgan and has experience managing both global and US-focused portfolios. Davidson has over two decades of investment experience and previously worked with De Tusch-Lec during his time at Merrill Lynch.

Both managers also run the equity portion of the Artemis Monthly Distribution fund but given the overlap in style and approach, we believe they can manage this workload comfortably. We like the challenge and support gained by working as a duo and we think their interaction with other teams enhances their analysis.

Process

The managers conduct detailed company analysis to identify those with a healthy amount of cash to either pay out dividends or buy back shares. As a natural contrarian, De Tusch-Lec is not afraid to invest in out-of-favour companies with recovery potential alongside higher-risk smaller companies and emerging markets, all of which increases the level of risk being taken in the fund.

The fund is divided into three buckets. ‘Core income’ forms the bedrock and has historically accounted for around 40% of the fund however, currently represents just 21% of the fund. These companies tend to be more mature, less sensitive to the wider economy and can provide a high and steady dividend yield. ‘Dividend growth’ is the second bucket and focuses on companies with the ability to provide an attractive and growing dividend, but are likely to be more exposed to the health of the broader economy (more cyclical). This bucket is currently the largest at 42% of the fund. Finally, ‘risk and special situations’ is usually the smallest of the three buckets, however, currently accounts for 37% of the fund.. It’s home to higher risk, lower quality companies which have the potential to pay a much higher dividend.

In addition to their company-specific research, the managers also take a view on the direction of the global economy. This considers factors like the economic cycle, interest rates and the yield curve. The outcome influences the weighting of each bucket.

The fund invests in around 70 companies. The amount invested in the US has grown since the fund launched, and now accounts for just under a third of the fund. That said, this is still lower than the broader global stock market. The managers also find plenty of opportunities within Europe. Although they don’t currently feature in the fund, the manager has the flexibility to invest in high-yield bonds and derivatives to help manage the portfolio, both of which are higher risk strategies.

De Tusch-Lec believes the global economy is slowing, and we are heading for a recession. It is just a question of the depth of the recession. Over the last 12 months De Tusch-Lec has made a number of changes to the fund. For example, he has bought British and Australian mining company BHP Group and Spanish financial services company CaixaBank.

On the other hand De Tusch-Lec has also sold a number companies over the last 12 months. This includes Tawian semiconductor company TSMC, Brazilian petroleum company Petrobras and Brazilian financial service company Banco do Brasil.

Culture

De Tusch-Lec is a partner at Artemis, and Artemis is a private company. We think this structure is a good thing for investors, as both manager and firm are focused on the long term and can run funds without distractions from short-term shareholder demands. Artemis also provides an attractive environment for fund managers, allowing them the freedom to run money how they best see fit without imposing a ‘house view’ on them. It’s also a collegiate atmosphere, with managers supporting and challenging each other.

ESG Integration

Investment teams across Artemis are encouraged to think for themselves and invest according to their own style, so approaches to ESG integration across the firm vary. Recent meetings with the Artemis teams we back on the Wealth Shortlist suggest ESG is an important factor.

Artemis has a firm-wide policy to support the aims of international conventions on cluster munitions and antipersonnel mines and therefore the firm will not knowingly invest in companies which produce these weapons.

Artemis votes on all their holdings, unless restricted from doing so, and fund managers engage with firms to develop their understanding, raise issues with management and monitor subsequent developments. The firm provides engagement case studies, and other information about its engagement and voting efforts, in an annual Stewardship report. Artemis also provides a monthly voting summary which includes rationales for votes against management and abstentions. Stewardship activity is carried out in line with the firm’s comprehensive voting and engagement policies

Although ESG is integrated into the funds process it is certainly not an ESG fund and can invest in areas with low ESG scores.

Cost

The fund is normally available for an annual ongoing charge of 0.87%. We negotiated a 0.27% saving though, so it’s available on the HL platform for 0.60%. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL annual platform charge of up to 0.45% also applies, except in the HL Junior ISA, where no platform fee applies.

Performance

Since the fund launched in July 2010, De Tusch-Lec is marginally behind the fund’s benchmark the MSCI AC World Index. Over this period the fund returned 410.48%*, compared to 419.61% MSCI AC World Index. However, he has comfortably outperformed the IA Global Income sector average which returned 270.86% There are no guarantees this will continue though, and there have been periods where the fund’s performance has varied significantly from the benchmark and its peers. This was the case in 2019 when the managers’ investment style weighed on returns.

We would typically expect the fund to underperform peers during falling markets and outperform in rising ones. This has been the case over the past 12 months with the fund returning 33.55% vs 17.81% for the peer group.

Japanese industrial company Mitsubishi Heavy Industries was one of the best performers. As was German industrial company Rheinmetall Group. Kinross Gold also performed well as they benefited from the rising gold price which hit numerous highs over the last 12 months.

On the other hand, not investing in US Semiconductor company Nvidia was the biggest detractor. The fund is unlikely to ever hold Nvidia given De Tusch-Lec’s focus on valuations and income. Investing in South Korean electronics company Samsung and Irish airline company Ryanair also detracted from returns.

The fund currently yields 3.24%, though yields are not a reliable indicator of future income and income isn’t guaranteed. The fund’s charges are taken from capital, which can increase income, but reduce the potential for capital growth over time. The fund and any income the fund produces can fall as well as rise in value, so investors could get back less than they invest.