InvestmentsJul 28 2014

Fund Review: Artemis Global Income fund

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

The £952.6m Artemis Global Income fund has been run by Jacob de Tusch-Lec since its inception in July 2010.

An income fund that invests in global equities, its aim is to deliver a decent dividend yield, Mr de Tusch-Lec says.

“Our starting point isn’t really the dividend – that’s our end point,” he says. “The starting point is to find good companies that we think are undervalued, shares that we think we can make money in and that happen to have good cashflow that lead to a decent and growing dividend yield.”

In the four years since launch, it is not the process but the world that has changed, the manager says: “Four years ago, there was a lot of economic uncertainty: the bull market had just started; the eurozone was struggling with the massive problems in the banking system; and sovereign debt was under attack, so it was a very different world.

“The fund has changed in [terms of] what kind of stocks we hold, but the process hasn’t. The process is still about finding stocks that we think can deliver.”

Mr de Tusch-Lec explains that during that period the portfolio was positioned for “survival”. “Now we are in a world that is still marred by low growth in Europe but growth in the US, the UK is actually not too bad at all. So, there is less of a focus on survival and more of a focus on finding undervalued stocks,” he adds.

He says the macroeconomic outlook and monetary policy outlook usually dictate the amount of risk-taking in the fund.

Turning to Europe, he notes: “We still like Europe as a recovery play and the fund is overweight Europe quite a lot.

“We’ve been quite overweight Spain, Italy and Portugal, but I’m fully aware that trade is not looking as good now as it did a year ago. Equities have caught up with events and valuations are probably around fair value, so we need a continued string of positive news out of southern Europe for equities to grind higher.”

Mr de Tusch-Lec admits: “Of course, some companies you buy without any macroeconomic thought at all. Some stocks you just buy because you think the company is undervalued and there is a great stock-specific story.”

The fund has recorded a top-quartile return over six months, one year and three years in the IMA Global Equity Income sector. To July 16 2014, it tops the sector over three years with a 50.23 per cent return, against the sector average of 31.85 per cent. It ranks second in the sector over one year, having notched up a 12.99 per cent return, compared to an average return of 4.38 per cent for the sector.

The fund is placed at the higher risk end on the risk-reward profile – level five, according to its Kiid – and has ongoing charges of 1.62 per cent.

The manager suggests it is the interplay between stock selection and top-down analysis that has helped the fund deliver a strong performance since inception. He insists that the fund has made money for investors by investing in companies that “weren’t the best companies in the world” and harks back to 2010-11 when the preference was for mega caps and high-quality companies.

“Companies that had any kind of political risk attached to them, companies that were in Europe, those that were not as high-quality, they were trading relatively cheaply,” he recalls.

“We said these companies will actually do OK when the economy recovers, especially in the US and Europe. So, a lot of the money we’ve made in the fund has been from multiple re-ratings, by which I mean buying companies on a price-to-earnings (P/E) multiple of eight that now trade on a P/E multiple of 10. Well, that is a 25 per cent upgrade in the share price.”

But Mr de Tusch-Lec admits these multiple re-rating stories have largely played out, which means he has turned his attention to stocks that are growing their earnings for future returns.

Expert view

Jake Moeller, head of Lipper Research:

Jacob de Tusch-Lec is a highly experienced and passionate fund manager with an exceptional grasp of economics and markets. The track record of this fund is impressive over three years, and it has outperformed more than 30 per cent above the sector since its launch. The manager eschews stocks such as Nestlé, Shell, Vodafone and Microsoft (commonly seen in global income portfolios) in favour of less popular mid-cap names. Overall, there is a considerable exposure (42 per cent) 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 to large caps.