Artemis Strategic Bond: April 2020 fund update

• We think this is a good choice for an income-focused portfolio
• A flexible approach and a willingness to be more adventurous when the outlook is positive
• Run by James Foster and Alex Ralph - two highly experienced bond fund managers

How it fits in a portfolio

The managers prioritise income, but they aim to provide some growth over the long-term too. This fund could add diversification, particularly for equity focused portfolios. It could also add a little spice to a bond portfolio, as it is positioned to be more adventurous than other bond funds.

Manager

The fund is co-managed by James Foster and Alex Ralph, two experienced fixed income managers who we rate highly. Both James and Alex joined Artemis in 2005 and combined, they have over 44 years’ experience in the investment industry. The duo’s willingness to invest quite a lot in higher-risk high yield bonds means we view it as a more adventurous option within the strategic bond sector. We think they’ve done a great job for investors so far, delivering strong performance, although there are no guarantees.

Process

To provide an income, and grow the value of the fund, the managers’ shift between different areas of the bond market, moving between government bonds, investment-grade bonds, and higher-risk high-yield bonds as conditions change.

The fund's positioning is determined by Ralph and Foster’s views on where we are in the economic cycle combined with an analysis of the prospects for individual companies and governments. When they're concerned about the economy, they're likely to invest more in lower-risk government bonds and less in high-yield bonds. They'll do the opposite and be more adventurous when they think the outlook's positive.

They aim to have a good mix of investments across a variety of sectors, credit ratings and maturities to reduce the risk of one area dominating performance. They can also use derivatives which can add risk. The managers want the fund to be balanced, with the potential to perform well in a variety of economic conditions.

In recent weeks there has been an increase in bond issuance as companies have looked to raise capital in response to the coronavirus crisis. Ralph and Foster have taken the opportunity to selectively participate in some new issues, including bonds issued by investment grade rated Comcast and Siemens and high-yield rated TalkTalk. They also increased the fund’s exposure to the US Dollar, an asset often perceived to be a safe haven during times of volatility, to help shelter against possible further risks.

Culture

Artemis is home to a good range of bond investors and Foster and Ralph are supported by a well-resourced team. Fund managers at Artemis are required to invest their own money into their funds, and this means they succeed when their investors do. Ralph and Foster are also partners in the business. We feel these are great incentives for them to continue striving for good performance. Both managers also manage other funds in addition to this one with Alex Ralph also managing Artemis High Income and James Foster also managing Artemis Monthly Distribution.

Cost

The fund is available to HL clients for an ongoing annual fee of 0.48%, with the 0.11% saving applied which we think is great value. 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 platform fee of up to 0.45% per year also applies.

Performance

The managers have an excellent track record and have outperformed the peer group over the long term. There have been uncomfortable periods though where the higher-risk nature of the fund has been demonstrated, none more so than during the financial crisis when the fund fell by more than its peers. It has since rebounded strongly though and while it might not hold up as well as some other funds in tougher conditions, we think the fund could perform strongly in a rising market. We think the managers have the experience and resources to do to a great job for long-term investors. Please remember past performance isn't a guide to the future. Like all investments, the fund can fall as well as rise in value so investors could get back less than they invest.

Past performance is not a guide to the future. Source: Lipper IM to 31/03/2020.

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Key investor information