Artemis SmartGARP Global Emerging Markets Equity

The fund’s philosophy is that markets are inefficient because investors have a number of behavioural biases. The SmartGARP screen seeks to take advantage of these inefficiencies by scanning thousands of companies from the bottom up. The team believes that rigorous quantitative analysis has a significant advantage over the human brain. However, they also recognise the inherent limitations of screens, which is why Raheel and the team oversee the screen and carry out their own due diligence on companies.

The SmartGARP screen aims to identify companies which are growing faster than the market but trading on lower valuations. The strategy has a bias in favour of momentum and it looks for companies whose profit forecasts are being upgraded. The screen also looks for stocks which are under owned, meaning there is potential for more investors to buy the stock thereby increasing its price.

After removing companies with less than a $500 million market cap, and those with fewer than three analysts covering the stock, the screen ranks 3,000 companies on eight different factors: growth, valuation, estimate revisions, momentum, accruals, ESG macro and investor sentiment.

Once the screen has been run, the team start looking at the top 10% of companies (around 650) to undertake due diligence and build a well-diversified portfolio. The fund does not blindly invest in stocks and the team does careful work to check the output of the screen and make sure there are no other factors influencing the stock which have been missed.

The primary role of the fund manager is one of due diligence and they are not looking to introduce subjectivity or behavioural biases which might undermine the investment process. In Artemis’ own words, they estimate around 80% of the process is quantitative and 20% is human judgement.

The final fund is well diversified across the region, with between 80 and 120 holdings.

The portfolio is built with diversification in mind, with strict but pragmatic risk controls. Sector exposures are limited, with a flexible tolerance of +/- 10% versus the benchmark. Country allocation is managed in a similar way, with a slightly higher range of +/- 6% versus the benchmark.

New positions are usually initiated at a fairly modest size of 0.3%-0.5%. This allows the managers to build conviction gradually. Individual holdings are capped at a maximum weight of 5%.

In addition, style and factor exposures are monitored to avoid any unintended biases creeping into the portfolio. While there are clear guidelines in place, the approach is not overly rigid and allows the managers to be flexible and respond pragmatically to market conditions.

ESG scores are integrated into the screening process, with the fund rewarding companies with good or improving ESG scores. The screen uses two sets of data from third parties which go into the process. The first of these is from TruValue Labs, which builds several ESG sub-scores for each company. Secondly, it uses estimates for a company’s Implied Temperature Rise (ITR). Companies with lower carbon footprints get a higher score.