Artemis UK Select

This is a high-conviction, multi-cap, UK equity fund, managed by two highly experienced managers. Whilst nominally style neutral, and willing to invest anywhere in the UK, the fund has often had a value bias in the past. The fund’s ability to short (profit when the share price goes down) a small number of holdings is another differentiator which sets this fund apart from its peers. With a concentrated portfolio of 40 to 50 holdings, the fund is positioned to generate high outperformance, but also comes with elevated risk.

Our opinion

This fund stands out as one of the premier UK equity funds due to the impressive track record of its managers. Ed Leggett has consistently delivered exceptional performance over his career, and alongside Ambrose Faulks, the fund has thrived since their partnership began in late 2015. The fund’s high-conviction approach and flexibility in stock selection make it an attractive choice for investors who are comfortable with higher levels of risk in pursuit of substantial long-term gains. However, investors should be prepared for potential drawdowns during periods of market stress. This fund is well suited for those seeking high reward potential but willing to accept greater volatility.

Fund manager

Ed Leggett joined Artemis in December 2015 to manage this fund. He also co-manages Artemis’ ‘high income’ strategy. Prior to that he managed the Standard Life UK Equity Unconstrained fund from 2008 which performed extremely well under his tenure. Ed graduated in manufacturing engineering from Cambridge and is a CFA charterholder.

Ambrose Faulk joined Artemis in 2013 and began co-managing this fund with Ed in 2015. Ambrose previously worked in the research department of a UK hedge fund and graduated from Oxford with a masters in Chemistry. He is a CFA charterholder.

Ed LeggettFund manager

Investment process

The Artemis UK Select fund employs a rigorous and flexible investment process that combines deep fundamental research with a pragmatic approach to macroeconomic trends. The fund's primary goal is to identify companies with growing earnings potential while also being undervalued by the market. It is a benchmark-agnostic fund, meaning it doesn't rely on market-cap weightings, and instead focuses purely on stock picking to drive performance.

The fund's investment process is broken into four stages:
1. Idea Generation: Ideas are sourced from sell-side research, company meetings, and the fund managers' proprietary research. Cross-referencing these sources ensures a broad view of potential opportunities.
2. Fundamental Research: Detailed analysis is conducted on companies and their industries, with a particular focus on cash generation, balance sheet strength, and the potential for outperforming consensus expectations.
3. Stock Selection: The fund looks for companies with solid fundamentals, growing earnings streams, and attractive valuations. Unlike some of their peers, stocks with stretched balance sheets are not avoided if the managers see potential for recovery.
4. Portfolio Construction: The final portfolio reflects a concentrated selection of the best ideas, with a typical holding period of three years. However, if a thesis plays out faster than expected, positions may be adjusted accordingly.

A unique feature of this fund is its ability to short up to 10% of its net asset value, typically in 3 to 10 positions. This shorting capability adds another layer of potential outperformance.

The fund is concentrated, with between 40 and 50 holdings, with a typical weighting of between 2% and 5%. Exposure to any sector of the market is capped at 30%. Whilst the fund is multi-cap it will invest 85% in companies within the FTSE 350.

ESG

ESG – Integrated

ESG factors are an important consideration as part of the investment decision-making process. The managers believe that ESG factors have the potential to affect long-term capital growth and they are therefore integrated into fundamental analysis. However, the fund is willing to invest in areas such as tobacco, defence and fossil fuels, where an ESG discount may have already been applied. Not every stock in the fund needs to be perfect but it needs to have scope for meaningful improvement.

Risk

The Artemis UK Select Fund is one of the more volatile options in the UK equity space. Its high-conviction approach, combined with its willingness to invest in cyclical sectors and companies with stretched balance sheets, increases both its potential for significant gains and for large drawdowns in risk-off market environments. Investors should expect periods of underperformance, especially during market downturns. However, the fund’s strong historical performance, particularly in rising markets, demonstrates its ability to outperform significantly over the long term. The managers’ deep understanding of the UK equity market and focus on valuation discipline help mitigate some of the risks, but volatility remains a key characteristic of this fund.

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