Artemis Short-Duration Strategic Bond

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.

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%.

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.