Not many investors who experienced the dotcom crash of March 2000 look back on it with much fondness but for Derek Stuart and Artemis Investment Management, the business he co-founded back in 1997, it was a defining moment.
For Stuart, who retires from managing money at the end of this year, it was the build-up to the crash that was difficult. “Watching the dotcom bubble build taught me a lot about the madness of crowds and the power of momentum in share prices,” he notes ruefully.
“You had all those companies generating paltry revenues and who were often unprofitable yet their stock was soaring simply because they traded on the internet.
“It wasn’t just in the US – I remember the day UK tea retailer Whittard announced it was launching a website. Its share price rose by something like 50% in a day. It didn’t make sense to us and we avoided a lot of the stuff that was going up.”
But, of course, the period from late 1999 to March 2000 was particularly tough for the fledgling fund group and it began to draw wider criticism for its approach.
Index-agnostic
“One of the characteristics of Artemis funds was that they did not track indices,” says Stuart.
“The industry was very focused on portfolio weightings relative to benchmarks at the time but we just did not see that as appropriate for small and mid caps.”
Stuart remembers the group’s funds being described as ‘risky’ because they had a zero weighting in Vodafone – as the share price in Europe’s then-biggest company headed up to a peak of £5.48 in March 2000.
“We were regularly challenged because we didn’t hold Vodafone and we were told we were too risky because we strayed a long way from the index,” he says.
“We didn’t see it like that – the valuation never made sense to us, so we found ourselves being different again.”
When the bubble burst, investors saw the benefit of the sort of disciplined focus on valuation Artemis prefers. Those backing Vodafone had fared rather less well, after all – in the space of just over two years, from March 2000, the telecom giant’s share price fell 75% as it wrote off a string of dotcom acquisitions.
Its share price remains under £1 today while many fellow dotcom darlings went bust, disappearing altogether.
“In the wake of all the carnage, the three-year track record for our UK smaller companies fund was very strong and that really helped our reputation,” Stuart says.
This encouraged investors to look more closely at Artemis and notice other differences. “We stood out in several ways,” says Stuart.
“When we set the business up, we invested our own money in our funds, and at the time, no-one seemed to do that. We believed in ourselves and believed we could make money for our clients.”
Soon afterwards Stuart launched the Artemis UK Special Situations Fund, hatched in a brainstorming session with fellow Artemis founder Mark Tyndall.
“There was only one other special situations fund at the time – Anthony Bolton’s at Fidelity. It seemed obvious as value investors we should launch one – but another example of us being different, perhaps.”
Charitable focus
Stuart retires from running Artemis Special Situations, which is up nearly 700% since launch, at the end of 2023.
He plans to concentrate on chairing the Artemis Charitable Foundation. The firm has had a charitable committee since 1997 and the foundation was created in 2007.
“It made sense from the outset to have a charitable culture because it creates a common purpose and brings people within the business together,” Stuart explains.
“Because we invest in businesses, we take the same approach with charities we support. We try to help them enhance the change they make. So, we look to help charities where we feel we can have genuine impact.”
He does not see this year as one of retirement but rather a “reallocation of duties”.
The 54-year-old says: “I’ve been working with two younger, much cleverer fund managers than me for the past few years – Andy Gray and Henry Flockhart. I’m comfortable the fund is in good hands and investors’ interests are well looked after.
“My family and I remain committed investors in the fund but, after more than 30 years managing money, it’s time to do something else.”
BIOGRAPHY
Derek Stuart, who co-founded Artemis in 1997, runs the Artemis UK Special Situations strategy he launched in March 2000, alongside Andy Gray and Henry Flockhart. He trained in fund management at Ivory & Sime and was promoted in 1992 to run UK equity income portfolios.
This article first appeared in the April edition of Portfolio Adviser Magazine
