Fund spotlight: Artemis Global Growth Fund

interactive investor's analysts give an update and view on the Artemis Global Growth Fund.

Given that global equities are experiencing their longest bull-run in history, investors are understandably concerned about prospects for market returns going forward. However, the sell-off in the fourth quarter of 2018 and subsequent recovery year-to-date demonstrate that, while investors are justifiably more cautious, there are good reasons to stay invested in global equities.

In comparison to returns on offer from bond markets, equities still look cheap around the world.

Growth equities have been in vogue for some time, and value stocks are now near historic lows. As high valuations across major markets make growth investing increasingly risky, some investors are preferring higher-quality value-oriented equities which limit downside risk.

Taking advantage of both value and growth, investors could focus on the 'growth at a reasonable price', or GARP strategy. Developed by former Fidelity Investments money manager Peter Lynch, GARP strategies invest in stocks that not only show higher growth characteristics than the market, but that are also trading at a lower valuation than they are intrinsically worth.  As a result, investors are exposed to less downside risk than a pure growth strategy.

The fund

Peter Saacke, manager of the Artemis Global Growth, uses a GARP strategy for investing. He invests in global, mainly large companies, which he believes are attractively valued but also have potential to grow to achieve long-term capital growth.

The manager extensively utilises Artemis' in-house quantitative screening tool, SmartGARP, to filter over 6,000 companies to find potential candidates for further qualitative fundamental assessment.

The unique quantitative tool aims to identify companies that are growing faster than the market but are also trading on lower valuations. They should be enjoying strong and consistent upgrades to profits forecasts, and be under-owned by the investment community, while at the same time benefiting from helpful macroeconomic trends. 

Every company is measured and scored on seven factors – Growth, Value, Estimate Revisions, Momentum, Accruals, Investor Sentiment and Macros. An overall score of 100 is excellent and 0 is very poor. Stocks with a score of above 90 are considered for inclusion in the fund. 

Saacke's fund usually has between 125 and 200 holdings, with the top 75 holdings typically making up around 75% of the fund. 

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SmartGARP tends to favour particular countries and sectors when producing its best ideas in each region and, as this primarily drives the fund's country and sector allocation, the result is that the portfolio has strong biases relative to the market index.

For the last few years, the fund has been overweight in Emerging Markets. About 30% of companies ranked above 90 by the model are Emerging Market names compared with 11% of the MSCI AC World Index. Similarly, the fund has a pronounced underweighting to the US at 45% relative to the 55% index allocation.

What's in it?

The fund offers a relatively large and well-diversified portfolio, with 136 stocks as at 31 May 2019. Top holdings include: JPMorgan Chase (NYSE:JPM) (1.8%), Roche (XETRA:RHO) (1.6%), Mastercard (NYSE:MA) (1.5%), Allianz (XETRA:ALV) (1.5%) and Lukoil (LSE:LKOD) (1.5%). 

Regionally, the fund continues to be overweight in Emerging Markets and Europe, and underweight Asia, Japan and North America particularly. At sector level, the fund remains largely overweight to construction, banks and utilities, with offsetting underweights in technology, retail and food and beverages.

The fund's bias to value stocks (stocks trading at below-market valuations) remains near all-time highs. At the end of May this year, the fund was trading on an average price-earnings (PE) ratio of 8.8x versus the benchmark at 14.3x, or in other words, a 39% discount.

How does it perform?

The fund's bias to value stocks along with a structural overweight position to Emerging Markets and underweight to US, has held back performance over recent years. However, the manager believes "going through painful and, at times, protracted periods of lacklustre short-term performance is the price to pay for long-term outperformance".

The potential for a re-rating of the fund is especially large given that there is strong long-term - 100 years-plus - evidence that having a bias towards value helps a fund deliver market-beating returns.

Fund performance:

Source. Morningstar Direct as at 31st May 2019. Total Returns in GBP.

The ii view

Artemis Global Growth Fund features on the ii Super 60 list of high-conviction active and passive funds as a Global Equities Adventurous recommendation.

The fund's positioning makes it one of the higher-risk options for global equity exposure, but patient investors should be rewarded over the longer term.

The unique quantitative process is likely to result in a portfolio that is quite different to peers and, therefore, the fund could complement a core global equities fund or tracker, providing potential diversification benefits within a broadly spread portfolio.

• Find out why this fund is on the ii Super 60 investments list
• Click here for more information on this fund, including price, yield and charges

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