Fund spotlight: Artemis US Smaller Companies

by Teodor Dilov from interactive investor |

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interactive investor's analysts give an update and view on one of our Super 60 fund picks. 

The Super 60 fund

For this Fund spotlight, I have chosen the Artemis US Smaller Companies fund, which has been quite popular among investors seeking exposure to the smaller end of the US market due to it being one of the standout active funds that invests in the region.

Despite concerns about growth and valuations, the US market is difficult for private investors to ignore. Many investors do not realise that the US smaller companies market is huge and offers much wider opportunities than the UK market, for example.

The fund is run by the highly regarded Cormac Weldon, who is also head of US equities at Artemis. He has an excellent track record of delivering above market returns throughout different market cycles.

It is not a secret that smaller companies usually receive less attention from professional investors than their larger peers and, therefore, the scope for experienced managers such as Cormac to take advantage of this is significant. His investment process targets quality businesses, which can grow their earnings in all market conditions and have predictable cash flows.

What does it invest in?

A combination of individual company research and macroeconomic analysis results in a high-conviction portfolio of approximately 40 to 60 stocks with a market value mostly below $10 billion (£7.7 billion). On a sector level, the fund has a sizeable position of around 20% in industrials, followed by consumer goods, financials, healthcare, consumer services and technology. Its largest holding is Pool Corporation (NASDAQ:POOL), which distributes the chemicals and parts used to maintain residential swimming pools.

The manager has a preference for higher-quality stocks, which helped him to manage the downside risk during the recent market turbulence.

More recently, the manager increased his exposure to consumer-related companies, adding to his existing holding in Churchill Downs (NASDAQ:CHDN), a company that owns a number of regional casinos. As US business activity starts to pick up, the team expect similar companies to Churchill Downs to perform well.

Performance

The fund is a great example of how less-efficient areas of the market could be exploited by active managers. It has built an incredible track record over the years while using an average for the sector level of risk. The fund has (up to 17 September) delivered 125% over five years compared to 68% for the Russell 2000 index (its benchmark), and 87% for the Investment Association (IA) North American Smaller Companies sector.

Despite the market shock earlier this year, the fund’s defensive qualities have served investors well. Year-to-date the fund has delivered a positive return 6.9% compared to 2.9% for the peer group and a negative return of -4.5% for the Russell 2000 benchmark.

5-year discrete performance (%) 18/09/2019 - 17/09/2020 18/09/2018 - 17/09/2019 18/09/2017 - 17/09/2018 18/09/2016 - 17/09/2017 18/09/2015 - 17/09/2016
Artemis US Smaller Companies Fund 6.22 4.24 38.26 20.26 22.33
IA North American Smaller Companies 2.48 3.56 27.15 13.97 21.69
Russell 2000 Index -4.40 -0.97 24.55 14.03 25.03
Morningstar US Small-Cap Equity Category 0.68 -0.33 26.22 13.79 24.35

Source: Morningstar

The ii view

One of the best features of this fund is consistency. Cormac uses a less aggressive approach, which results in better risk-adjusted returns over the short and long term. The fund’s investment process has also proved to be a very efficient one.

Considering the fund’s specifics, such as a small-cap bias and single region of investment, this strategy could well fit the needs of both balanced and more adventurous investors with a longer-term investment horizon. Due to its unconstrained and concentrated nature, the fund’s return profile could be more volatile than the market, which makes it higher-risk option. Therefore, this strategy could be best utilised as a satellite holding within a well-diversified portfolio.

If you enjoyed this article, you may also like other funds picked for interactive investor's Super 60 range of high-conviction investment ideas. Click here to find out more.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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