Artemis Strategic Bond: March 2022 fund update

• The fund is managed by Juan Valenzuela and Rebecca Young, who have previous experience running strategic bond funds
• The managers can invest flexibly across different bond markets
• The managers benefit from the support and challenge provided by a strong fixed income team at Artemis
• The fund doesn’t feature on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits into a portfolio

The managers aim to provide a combination of income and capital growth over the long term by investing across different areas of the bond market. As a slightly more adventurous fund in the Strategic Bond sector, Artemis Strategic Bond could add a little spice to a bond portfolio, add some diversification to a shares portfolio, or be considered for an income-focused portfolio. The managers can invest in high-yield bonds and have the flexibility to use derivatives which adds risk.

Management team

Juan Valenzuela began his career in 2003 at JP Morgan. Since then he has worked at SWIP, Alliance Trust and Kames Capital where he co-managed a Strategic Bond fund. Valenzuela joined Artemis in 2019 to join the fixed income team led by Stephen Snowden along with a number of his ex-colleagues at Kames Capital.

Rebecca Young began her career at Janus Henderson in 2009 and held positions as co-manager of the Janus Henderson Horizon Strategic Bond Fund and the Janus Henderson Preference & Bond Fund. Young left Janus Henderson in 2021 to join Artemis. The managers receive support and challenge from an experienced fixed income team, led by Stephen Snowden, that we rate highly.

Last year, previous managers of the fund, Alex Ralph and James Foster, left Artemis. We were disappointed to see the experienced duo leave so removed the fund from the Wealth Shortlist in September 2021. While we have no reason to believe Valenzuela and Young aren’t capable fund managers, they are less experienced, and we aren’t as familiar with them as investors. As a result, we do not have the required level of conviction to retain the fund on the Wealth Shortlist.

Process

The managers shift between different areas of the bond market, moving between government bonds, investment-grade corporate bonds, and higher-risk high-yield bonds as market and economic conditions change. The fund's positioning is determined by Valenzuela and Young’s views on where we are in the economic cycle combined with their analysis of the prospects for individual companies and governments. Valenzuela leads on wider economic views. Young contributes to this too but leads more on credit selection.

When they're concerned about economic prospects, 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 (the quality of the bond) and maturities (the length of time until the bond matures) to reduce the risk of one area dominating performance. The managers want the fund to be balanced, with the potential to perform well in a variety of economic conditions.

In recent months, the managers have added to investments in US high yield bonds as they think they offer good value. They have also continued to increase the quality of their high yield investments, selling the CCC-rated bonds of eDreams.

The managers are broadly positive on the prospects for companies in the high yield part of the market. They believe high-yield credits are well placed to perform better than higher-quality credits and government bonds in an inflationary environment where we’re likely to see interest rate hikes.

Culture

Valenzuela and Young are partners at Artemis, which 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 prospects of the fund.

Fund managers at Artemis are required to invest their own money into their funds, and this means they succeed when their investors do. Artemis also provides an attractive environment for fund managers, allowing them the freedom to run money how they see fit without imposing a ‘house view’ on them. It’s also a collegiate atmosphere, with managers supporting and challenging each other. The managers consider environmental, social and governance (ESG) factors in their bond analysis and have the support of Artemis’ stewardship team.

Cost

This fund has an ongoing annual charge of 0.57%, but we've secured HL clients an ongoing saving of 0.11%. This means you pay a net ongoing charge of 0.46%. The fund discount is achieved in the form of 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

Since Juan Valenzuela took over as manager of the fund in September 2021, the fund has performed similarly to the IA £ Strategic Bond peer group average. Over this period the fund lost 4.49%* compared with an average fall of 4.35% for the peer group. Rebecca Young joined Valenzuela in November with Stephen Snowden stepping back from his interim role as co-manager of the fund, supporting Valenzuela until Young arrived from Janus Henderson. This is a very short time period to consider though and past performance isn’t a guide to the future.

The managers have a positive outlook for growth in developed markets in 2022 with consumers and businesses in a relatively good financial position. They expect higher wages should help to protect real disposable incomes as long as inflation begins to moderate in the coming months. They do expect yields to rise though as central banks raise rates and quantitative easing is withdrawn. Valenzuela and Young are less positive on the outlook for emerging markets which they think are more vulnerable to any weakening of global economic activity and inflationary pressures.

Past performance is not a guide to the future. Source: *Lipper IM to 28/02/2022.

Find out more about Artemis Strategic Bond, including charges

Artemis Strategic Bond Key investor information