Over the past year the UK stock market has been characterised by high levels of volatility. Concerns over slowing growth in China and falling commodity prices has unnerved investors leading to severe market swings, particularly in the FTSE 100 Index of the UK's largest companies.
Derek Stuart, manager of the Artemis UK Special Situations Fund since March 2000, doesn't believe he has seen such extreme moves in the FTSE 100 throughout his fund management career. In his view investors have reacted too sharply and quickly to wider economic news, rather than focusing on the long-term prospects for individual companies. In this type of uncertain environment, he suggests investors seeking long-term returns should hold their nerve and ride out periods of volatility.
Last calendar year the fund delivered a return of 3.7%*, outperforming the FTSE All Share index by 4.7%, although this is not a guide to how the fund will perform in future. A small weighting in the poor-performing oil and mining sectors proved beneficial. The fund also outperformed the IA UK All Companies sector but to a lesser degree, given many of the fund's peers also expressed caution and avoided oil and mining companies.
|Annual percentage growth|
| Feb 11 -
| Feb 12 -
| Feb 13 -
| Feb 14 -
| Feb 15 -
|Artemis UK Special Situations||-4.9%||19.5%||20.4%||-1.0%||1.9%|
|IA UK All Companies||-2.4%||16.3%||16.3%||4.8%||-1.6%|
Past performance is not a guide to future returns. Source: Lipper IM* to 01/02/2016.
Software company Micro Focus, currently the fund's largest holding, had a strong year, particularly towards the end of 2015 after producing a strong set of results and upgrading its forecasts for 2016. The manager has since taken profits and reduced the position slightly.
On the other hand a position in Home Retail, the parent company of Argos and Habitat, performed poorly. The last few months of the year were most painful after the company issued a profit warning. Derek Stuart maintained his holding, however, and the stock has fared better so far this year. Argos remains the second most-visited online retailer in the UK, while the manager feels a takeover by Sainsburys could prove positive for the company.
Our view on this fund
Derek Stuart has a good long-term track record managing UK equities. He was joined by co-manager Andy Gray in January 2014 and also has the support of Artemis' wider team of analysts.
The fund performed exceptionally well over its first four years, when it was much smaller and had greater exposure to smaller companies. While the fund has outperformed its benchmark and the sector average over the past eleven years, performance has been more subdued. As always, past performance is not a guide to future returns.
While we rate Derek Stuart as a quality fund manager, we believe the fund's size is likely to restrict his ability to exploit opportunities in higher-risk small and medium-sized companies. Consequently we believe he is less likely to be able to deliver the levels of strong performance seen in the past. Presently, this fund does not feature on the Wealth 150 list of our favourite funds across the major sectors.