The board of Artemis’s authorised fund manager has singled out underperformance on £3.1bn worth of assets in its first value assessment, now required under Financial Conduct Authority rules.
The future of one Artemis fund is now up in the air while two others are being merged into larger products.
The fund board examined 22 UK-domiciled funds in the document, which covered the period to the end of December 2019 and assessed performance over five-years on an absolute basis as well as on a relative basis compared to the index and rival products.
The FCA has required all asset managers to produce value for money assessments for UK-domiciled from the end of January. They have four months after the end of the period covered in their fund annual reports to publish the documents.
Among the first fund houses to report, Aberdeen Standard Investments singled out a trio of funds worth £1.8bn for underperformance in its first value assessment, while Orbis argued its underperforming funds remained good value due to their variable fee structure.
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Jacob de Tusch-Lec and Sam Morley responsible for most underperforming assets
The £1.6bn Artemis Global Income managed by Jacob de Tusch-Lec (pictured) and Sam Morley was the largest fund singled out for underperformance. It returned 48.1% compared to 76.2% in the MSCI AC World index and 58% in the Investment Association Global Equity Income sector.
Despite the disappointing five-year performance, the fund board decided that Artemis Global Equity Income, a much smaller fund managed by de Tusch-Lec and Morley, along with James Davidson, should be merged in the similarly named Artemis Global Income fund.
The smaller fund has just £6.67m assets under management and has returned 13.3% over four years compared to 32.6% in the benchmark and 24.1% among its peers.
The board said the fund had shrunk to its current size due to client redemptions in Q4 2019 and Q1 2020. It said the fund is due to merge with the larger alternative in Q3.
The Artemis US Equity fund was also merged into a bigger rival, the £1.6bn Artemis US Select fund, although this came on the back of outperformance compared to its peers and benchmark and an assessment from the fund board that it delivered “very good value”.
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Future of absolute return fund that lost investors money now in doubt
Although Artemis Global Income was the largest fund singled out by the fund board, the most damning underperformance was seen in the Artemis Pan-European Absolute Return fund, run by Paul Casson.
The £6.99m fund lost investors 4.3% in the three years to December 2019.
The board attributed this to a 9.1% fall in Q4 2018 when the fund manager had taken a positive view on European equities and oil.
The board described “repeated periods of sudden, significant downside volatility” and said the fund had not met its primary objective to achieve a positive return over a rolling three-year period.
The board will make a decision on the ongoing viability of the fund by mid 2020. It is the only fund run by Casson, according to Trustnet.
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Co-manager added to Strategic Assets after govvies short goes sour
On the Artemis Strategic Assets fund, which lagged its CPI+3 benchmark over a three-year period, the fund board argued “broader-based decision making” would benefit performance.
Kartik Kumar, who has worked on the fund since 2013, was promoted to co-manager this year as a result to work alongside existing manager William Littlewood.
The fund had returned 18.4% over a three-year period compared to 41.5% from its peers in the Investment Association Flexible Assets sector, which the value assessment attributed to a 15.4% loss on a short position in government bonds. The report noted the investment committee had worked with Littlewood to improve his risk analysis on the short, including an increased focus on its correlation with some equity positions.
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Value funds get a pass from fund board
Three funds representing £1.2bn additionally had their performance called out but were given a pass from the fund board due to their value approach to managing money.
The £461.86m Artemis UK Special Situations fund, managed by Derek Stuart and Andy Gray, returned 34.1% over five years compared to 43.8% in the index and 44.3% compared to the peer average.
Alongside value, the board attributed underperformance to its high exposure to UK domestic earners exposed to Brexit. The document noted the Artemis investment committee had worked with the fund managers to improve their sell discipline and employ “greater patience” in building positions in emerging special situations.
The Artemis Global Growth fund, managed by Peter Saacke, and the European Growth fund that he runs with Philip Wolstencroft, were both also given a pass due to their value bias. The board said they believed the managers could outperform in different market conditions.
