InvestmentsDec 19 2013

Fund Review: Artemis Global Growth fund

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The manager uses the SmartGARP screening tool, which screens for stocks that are cheap compared with growth forecasts, but he adds: “Where there is evidence that those growth forecasts are realistic (rare) or even conservative (even rarer), rather than too optimistic (very common), I spend most of my time doing due diligence on SmartGARP’s suggested stock ideas, and thinking about how to blend them to create a diversified portfolio.”

Mr Saacke, who in January 2014 will mark 10 years of managing the fund, explains: “We screen and monitor stocks’ financial characteristics very rigorously and unemotionally. We also recognise that behavioural factors have a strong, lasting influence on stock prices. Much has been made of the ‘new normal’ following the financial crisis, but investors’ behavioural quirks and biases are as strong and persistent as they were before the crisis.”

The process has remained relatively unchanged, although the manager has noted the amount of information now available on global stocks in general, and emerging market stocks in particular, has increased significantly in the past decade.

Macroeconomic variables, such as gross domestic product growth, inflation and interest rates, are monitored and affect whether the fund investigates more cyclical stocks at one time rather than defensives, or more commodity plays or financials at another.

Mr Saacke adds: “At the moment, from a macro perspective alone, cyclical sectors such as autos, travel and leisure, media and technology are looking particularly attractive. This reflects facts such as G7 GDP consensus forecasts edging up.”

The £174.7m fund has performed consistently, outperforming both the MSCI AC World index and the IMA Global sector average in one and three years to November 26 2013. In addition, the five-year return of 97.88 per cent outperforms, just, the sector average of 97.07 per cent but lags the index return of 102.39 per cent, according to Morningstar.

“Over the past few years the fund has performed well in spite of our regional asset allocation having been wrong – that is to say, we have systematically had a big overweight in emerging markets and corresponding underweight in North America; the latter has outperformed the former materially in the past three years,” Mr Saacke explains.

“Our stock picking has been excellent in all regions. The list of our biggest stock-specific contributors is an eclectic one: of the top 10, three are American, three Japanese, two European, one Chinese and one Australian.”

A significant change in the past 12 months has been a move from underweight to overweight in technology to take advantage of improved valuations, including investing in Apple in August, having previously sold out of the stock in July 2012.

“The US tech sector underperformed the broader market by more than 15 per cent between September 2012 and March 2013. At that point, however, valuations had become much more appealing and consensus positioning had normalised. When the news flow on a number of companies began improving, we started moving from underweight to overweight,” Mr Saacke says.

Looking ahead, the manager notes the fund is not driven by market views, so the team is agnostic about where the market will end up. But he admits: “Critical to the performance of the fund will be whether emerging markets find their way back into investors’ favour. We have 30 per cent invested here and after underperforming global equities by almost 20 per cent this year alone, the catch-up potential is substantial.”

A consistent performer with a clear, disciplined process and a manager willing to wait and act on opportunities, this could be a strong core holding for global growth exposure.

Expert View

Geoff Mills, managing director, Rayner Spencer Mills:

“The fund manager has been in place since 2004 and has built up a strong track record now using the SmartGARP process established for the European selection model. The system is central to the selection of all stocks, but it is up to the manager to make the final selections. The fund has recently implemented a process that has increased the number of stocks and the trading of stocks in the tail of the portfolio. Overall, the strength of the process warrants the inclusion of this fund in our recommended list.”