Five funds for the worst-case scenario
Investors are still getting used to a ‘new paradigm’ for financial markets, where inflation and i...
Artemis Short-Duration Strategic Bond
Artemis Short-Duration Strategic Bond fund is a ‘Steady Eddie’ targeted absolute return fund, with a heavy emphasis on controlling risk. It targets an annual return of at least the Bank of England Base rate + 2.5% after fees and invests globally in government and corporate bonds as well as asset-backed and mortgage-backed securities.
Previously Artemis Target Return Bond
Our opinion
This is an excellent fund for those who dislike volatility but want a better return than cash. Steve Snowden is one of the one most experienced fixed income managers in the UK, and he has a great long-term track record. The fund has a solid, flexible process, combined with a tight risk management. Unlike many targeted absolute return funds which overcharge, the fees for this fund are low (0.40% OCF). It is never going to ‘shoot the lights out’, but for those looking to preserve their capital with a reasonable return, this has to be a consideration.Company description
UK-based Artemis was founded in 1997 as a limited liability partnership. Affiliated Managers Group (AMG) and the management team at Artemis own 100% of the equity of the business. This is a financial partnership; AMG takes a share of the revenues produced by Artemis but does not get involved in the day-to-day running of the business. A recipient of the Elite Provider for Equities rating in 2015, 2016, 2017, 2018 and 2020, Artemis has retained its manager-centric, innovative and supportive culture, which has helped it to attract and retain talented investors.
Fund manager
Stephen Snowden began his career at Aegon Asset Management (previously Kames Capital) in 1994, having obtained a BSc and an MSc in Finance from Queen’s University in Belfast. He moved to Old Mutual Asset Managers in 2004 to run their corporate bond fund, before returning to Kames as co-head of fixed income, co-managing Kames Investment Grade Bond fund, Investment Grade Global Bond fund, and the Absolute Return Bond fund in 2011. In 2019 Stephen joined Artemis from Kames Capital, bringing with him four other fixed interest team members.
Juan Valenzuela has almost 20 years’ experience. He began his career at JP Morgan in 2003 and joined SWIP in 2006 where he managed several mandates including Absolute Return Bonds. Juan went to Alliance Trust in 2012 where he co-managed the Dynamic Bond fund. Juan then worked at Kames where he co-managed a number of strategies. Juan was one of a number of Kames fixed income team members who left Kames to join Artemis in 2019. He is a CFA charterholder.
Stephen SnowdenFund manager
Investment process
The manager’s philosophy is that markets are inefficient and financial operators often behave irrationally. Liquidity constraints, portfolio and benchmark restrictions - and increasingly passive strategies - all create opportunities for the active manager.
To take advantage of this, the fund is flexible and targets investments across the fixed income market with the ability to go both long and short. The investment process begins with an assessment of macro fundamentals; the economic cycle and inflation, the outlook for monetary and fiscal policy and political and regulatory risks. The team will then analyse valuations across the fixed income market. Where is the value? Is there compensation for the risk? What is the current sentiment and what is the potential downside? Technical factors such as supply and demand imbalances and unconventional monetary policy are also considered.
Maximising risk-adjusted returns is the goal and the fund looks to generate returns from six different sources; asset allocation, stock selection, ratings, sector selection, yield curve and duration.
The fund is broken down into three different modules: credit, rates and carry. The carry module is generally expected to be the least volatile module and is made up of short duration investment grade credit with up to three years to maturity. Callable bonds, which can be riskier, are not held in this short duration module.
The rates module focuses on government bond markets across the world. It will incorporate the team’s view on inflation, interest rates and yield curves
The credit module is all about fundamental research and finding stock-specific opportunities across investment grade, high yield and emerging markets.
ESG
ESG - Integrated
Stephen acknowledges that ESG factors can be a material driver of company fundamentals and as such, incorporates analysis of these factors into the process. This work is done internally, rather than bought in from a third-party, and performed in conjunction with the fundamental, technical and economic analysis already performed on a stock. Stephen believes this work is based around qualitative factors rather than providing a score, so he needs to integrate them within the stock analysis to ensure they are best captured in the overall analysis of a security. ESG factors are considered at both an individual stock basis and at a portfolio-wide level to ensure no unintended risks are systematically taken.
Risk
The three different modules allow for good diversification which helps to manage risk. However, from a risk perspective the fund is managed as a whole. The fund does not maintain a minimum risk level but risk is managed very carefully and follows a strict stop loss policy. Any position which costs the fund more than 10 basis points is immediately reviewed. High yield and emerging market exposure is capped to a maximum of 40%.
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Read more about this fund
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