- Cormac Weldon has almost 20 years’ experience of investing in the US and has the support of a strong team of analysts
- He uses a clear, disciplined investment approach, which has served the fund well since its launch
- We think this is a great way to invest in smaller companies with high growth potential in one of the world’s most innovative markets
This fund has been added to our Wealth Shortlist of funds chosen by our analysts for their long-term potential.
How it fits in a portfolio
The fund aims to deliver long-term growth by investing in smaller companies based in the US. Smaller businesses are often among the most innovative and offer lots of growth potential, but they're higher risk than their larger counterparts. The fund could be a good addition to a portfolio with little invested in the US, or could work well alongside other US funds focused on larger companies.
Cormac Weldon leads the US equity team at Artemis and has been manager of the fund since its launch in October 2014. He joined the company from Threadneedle, where he was head of the North America team. He has plenty of experience investing in the US market, having managed funds investing there since 2001, and is a manager we rate highly.
Weldon has the support of a good-quality team of investors around him too, with seven dedicated US analysts at his disposal. Many of the team moved across from Threadneedle to join Artemis at the same time as Weldon, so they’ve worked together for a long time. They all follow the same investment process and are specialists in their respective sectors.
Weldon believes stock market prices don’t always reflect the true worth of companies, especially smaller ones. That gives him the opportunity to find businesses that’ve been underestimated or overlooked by other investors but he thinks have great potential.
Weldon looks to invest in companies that he thinks have a 2:1 ratio of upside potential versus downside risk from the current market price. He does this by identifying what really drives the company. His team then spend time modelling what could happen to their profitability and growth over time, as they are likely to have the greatest impact on its valuation in the future. He then builds the portfolio with these ratios in mind, with the companies where upside potential significantly outweighs the downside risk likely to justify larger position sizes in the fund.
Regularly meeting company management is important to Weldon and his team. They think this is one of the best ways to deepen their understanding of the business model and assess the quality of the management team.
Weldon also considers how the US economy is performing to identify sectors that are benefiting from trends, as well as the areas that are finding things tough. This can help him decide how much to invest in a sector, although he won’t invest beyond 10% more or 10% less than its weight in the Russell 2000 index. Single investments are also limited so their weight in the portfolio doesn’t differ too much from their weight in the benchmark. In practice though the fund and the benchmark will look different as the fund only invests in 40-60 companies out of the thousands that make up the index. Weldon believes the sector and stock level limits provide him ample freedom to reflect his convictions whilst also ensuring a good balance of investments. Holding a smaller number of investments can increase risk, as each has a larger impact on performance.
The recent coronavirus-related market disruption has seen the share prices of many companies fall sharply. Weldon has taken this opportunity to invest in some attractively-valued software companies. Varonis, which develops data security and analysis software, was recently purchased as Weldon believes it can generate strong recurring revenues.
Weldon is a partner 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 and can run funds without distractions from short-term shareholder demands. Artemis provides an attractive environment for fund managers, allowing them the freedom to run money how they best see fit without imposing a ‘house view’ on them. It’s also a collegiate atmosphere, with managers supporting and challenging each other. Fund managers at Artemis are required to invest their own money into their funds, so they benefit when their investors do.
The fund is available to HL clients for an ongoing annual fee of 0.80%, with a 0.09% saving applied to the original annual fee of 0.89%. 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.
Since joining Artemis to launch the fund in October 2014, Weldon has delivered attractive returns for investors, gaining 153.9% compared with 76.1% for the Russell 2000 index over the same period*. Our analysis suggests Weldon’s stock picking has added value for the fund, particularly in the consumer discretionary sector. Please remember past performance isn't a guide to the future.
So far this year, encompassing the recent coronavirus-related market volatility, the fund has also performed strongly, gaining 1.3% compared with a fall of 9.9% for the Russell 2000*. This is a very short timeframe to compare performance over though, and it isn’t a guide to the future. Some investments in the fund, such as the fast food chain Wingstop, have seen a limited impact from Covid-19. Wingstop has managed to remain open throughout the crisis and has benefitted from the increased demand for takeaways over this period. Bio-Rad, which distributes life sciences products used in pharmaceutical research and laboratories, has also performed strongly.
|Annual percentage growth|
| May 15 -
| May 16 -
| May 17 -
| May 18 -
| May 19 -
|Artemis US Smaller Companies||1.1%||41.9%||20.2%||7.4%||11.3%|
Past performance is not a guide to the future. Source: Lipper IM *to 31/05/2020