Artemis Strategic Assets Fund
Fund Manager's Comment
Data as at 30 November 2010
Overview
As the macroeconomic environment deteriorated, equities fell in November: the Chinese continue to tighten their monetary policy, albeit slowly; the sovereign debt crisis rumbled on with Ireland having to be rescued; and North Korea reminded the world of its potential menace. Interestingly, bonds also performed poorly. Yields rose (and prices fell) in most parts of the world. As we have substantial government bond shorts, this was helpful for the fund. But because our equity longs also fell in the month, the fund was flat overall.
The sovereign debt crisis remains the biggest threat to investors. Our view, long espoused here, is that this problem will be with us for years to come. Ireland was rescued with a €85 billion package. This might keep that country going for a few more years. But given the huge levels of debt and the ever deteriorating demographic pressures, Europe will not be able to save itself. Next in line for a bail-out will be Portugal, followed by Spain. If Ireland with a population of 4.5 million needed €85 billion, what will Spain — with a population nine times larger — require? Our view remains that at some stage this crisis will envelop countries that the bond market currently views as strong: these include the UK, France, Japan and the US.
Although the European Central Bank has been reluctant to discuss quantitative easing, it looks increasingly likely that this is a route they are going to have to pursue. Otherwise some weaker countries will probably be forced out of the euro. Even for stronger countries, such as Germany, printing money is preferable to a breakup of the currency union for two reasons. First, the political will to keep the euro project alive is immensely strong; second, European banks, including the German ones, have lent huge amounts to the weaker countries. If any of the weaker countries left the eurozone, they would default on their euro-denominated loans, probably causing a systemic crisis across Europe. I expect markets will begin to price in some form of European quantitative easing. This would be helpful to equities in the short run, but bad for bonds: investors would begin to realise that the only way for over-indebted countries to reduce their borrowings is to create inflation.
Fund Manager
William Littlewood
Manager of the Artemis Strategic Assets Fund since 5 May 2009
Strategic Assets PDFKey Facts
| IMA Sector | Active Managed |
|---|---|
| Sedol Number | B3VDDQ5 |
| Fund size (offer basis) | £735.0m |
| Unit offer price | 65.82p |
| Unit bid price | 62.17p |
| Minimum lump sum investment | £1,000 |
| Minimum monthly investment | £50 |
| Valuation (UK business days) |
12:00 noon daily |
| Launch | 5 May 2009 |
|---|---|
| Launch price | 50p |
| Preliminary charge | 5.25% |
| Annual Management cCarge | 1.50% |
| Unit type | Accumulation |
| Distribution pay date | 31 October |
| Historic yield | 0.8% |
| TER | 1.58% |
Performance
| Since Launch* | 1 Year | 6 months | 3 months | 1 month | |
|---|---|---|---|---|---|
| Strategic Assets† | 31.1 | 15.6 | 4.5 | 8.1 | 0.1 |
| FTSE APCIMS/Growth TR | 28.8 | 10.7 | 6.1 | 6.5 | -0.9 |
| FTSE All Share | 33.9 | 11.5 | 8.6 | 6.8 | -2.3 |
| IMA Active Managed | 30.5 | 12.4 | 7.7 | 9.2 | 0.3 |
| Position in Sector | 57 | 26 | 119 | 94 | 67 |
| Funds in Sector | 121 | 126 | 128 | 128 | 129 |
| Quartile | 2 | 1 | 4 | 3 | 3 |
Please remember that past performance is not a guide to
the future.
* Data from 26 May 2009, due to the fixed price period of the fund. Source:
Lipper Limited, bid to bid in sterling with net income reinvested to 30 November 2010. All figures show total returns. †Percentage Growth.
Sector is IMA Active Managed.
Performance Growth
Artemis Strategic Assets Fund 12 Months to 30 September 2010
| 2010 | 2009 | 2008 | 2007 | 2006 |
|---|---|---|---|---|
| 14.2 | n/a | n/a | n/a | n/a |
As the Artemis Strategic Assets Fund was launched on 5 May 2009, complete five year performance data is not yet available.
Source: Lipper Limited, bid to bid in sterling with net income reinvested. All figures show total returns.
Value of £1,000 invested at Launch to 30 November 2010
Data from 26 May 2009, due to fixed price period of the fund. Source Lipper Limited, bid to bid in sterling with net income reinvested to 30 November 2010.
Fund Exposure*
Long % | Short % | Gross % |
|
| Cash | 9.0 | - | 9.0 |
| Equities | 85.5 | 7.5 | 93.0 |
| Commodities | 5.5 | - | 5.5 |
| Government Bonds | - | 80.0 | 80.0 |
* Source: Artemis as at 30 November 2010.
Bonds
Despite the announcement from the US Federal Reserve that they will be buying another $600 billion of US treasury bonds, bond yields rose in November. Investors are becoming concerned about the inflationary outlook and the ability of governments to repay their loans. Inflation remains stubbornly high in the UK. On the CPI measure, inflation is now 3.2% and 4.5% on the RPI (which the public and the trade unions prefer). The Bank of England has raised yet again its forecasts for inflation, with its new projections suggesting CPI will rise further to 3.5%. (As usual they expect inflation to then fall after this, blaming one-off events. The trouble is that these one-offs appear to be recurring events). Elsewhere, expectations for inflation are still rising and inflation in China is now officially recorded at 4.4%. My view on this is quite clear: the west needs rising inflation to reduce the real value of its debts.
Although our bond shorts as a percentage of the fund went down a little last month, we have increased the duration of the bond shorts. Currently 17% of our government bond short exposure is in 20 and 30-year bonds. At the end of October, this figure was 10%.
Government Bonds Shorts Breakdown
| Japan | 54.8 |
|---|---|
| UK | 14.9 |
| US | 10.3 |
Source: Artemis as at 30 November 2010.
Currencies
Our core position of being long the Asian currencies and short the big four reserve currencies remains little changed. We expect to have these positions for a long time. The biggest movement over the month was the reduction in the sterling long from 9% to 5%. As explained in previous factsheets, we are effectively short of sterling because 35% of the fund’s assets are in overseas shares and commodities, which we deliberately don’t hedge back in to sterling. The 5% sterling long in the currency overlay part of the fund is a way of hedging partially the currency of the overseas assets.
As they all face difficult headwinds, it is quite hard to work out which of the big four reserve currencies is the least attractive. Currently we favour the US dollar over the yen, euro and sterling. Although we applaud the attempts by the UK coalition government to sort out the public finances, the UK still has enormous levels of private sector debt, massive off balance sheet liabilities and house prices which to me still look too high. All these factors suggest that sterling needs to fall further. So we have reduced our position.
Currencies (excluding securities)
| Long | % of fund |
|---|---|
| Singapore $ | 21.3 |
| Taiwan $ | 14.4 |
| Hong Kong $ | 10.2 |
| Norwegian Krone | 9.3 |
| Malaysian Ringgit | 6.2 |
| Swedish Krona | 5.0 |
| Sterling | 4.9 |
| Korean Won | 4.9 |
| Short | % of fund |
| US $ | 25.2 |
| Euro | 22.6 |
| Japanese Yen | 19.3 |
| Australian $ | 6.3 |
| South Afrian Rand | 2.6 |
Source: Artemis, as at 30 November 2010.
Equities
We took advantage of falling equity prices in November to add to our shares. As a result our net equity exposure rose slightly from 76% to 78%. Our geographic weightings changed little over the month, but we have continued adding to our large cap stocks. Stocks large enough to be in the FTSE 100 and their international equivalents now account for 73% of the equity long portfolio. Our largest sector weightings continue to be healthcare (pharmaceuticals and medical device makers) and oil shares, which account for 16% and 15% of the long equity position respectively.
The next largest sector is global consumer brands, which account for 8%, and outsourcing companies at 7%. We decreased our positions in the outsourcing sector earlier in the year, but recently we have been rebuilding them. The shares have been poor performers of late as the market worries about the short term impact of government austerity programs. However, in the long run, many of the outsourcing companies we hold should benefit from government actions to reduce the cost and improve the efficiency of the services the state provides.
Long - only equity breakdown
| % | |
| Large Cap | 72.9 |
| Mid Cap | 19.7 |
| Small Cap | 7.4 |
Asset Allocation - Geographical Breakdown
| % | |
| UK | 62.7 |
| US | 29.2 |
| Japan | 3.3 |
| Switzerland | 3.2 |
| Europe | 1.2 |
| Canada | 0.4 |
Number of Equity Holdings
| UK | 76 |
|---|---|
| US | 33 |
| Switzerland | 3 |
| Japan | 2 |
| Europe | 2 |
| Canada | 2 |
Source: Artemis as at 30 November 2010.
Commodities
As in previous months, we have been gentle sellers of commodities into rising prices. We believe that being long of commodities and short of government bonds will be correlated trades, but that the downside from shorting government bonds is lower than being long of commodities. So although we think the outlook for commodities is good, we prefer to have large government bond shorts. It is also worth noting that we have 13% of the fund in oil shares. This reflects our bullish view on the oil price.
Key Holdings
| Gold | 3.3% |
|---|---|
| Platinum | 1.1% |
| Agriculture | 1.1% |
Source: Artemis as at 30 November 2010
Top Ten Holdings*
| BP | 3.0% |
|---|---|
| GlaxoSmithKline | 2.4% |
| Lloyds Banking Group | 2.2% |
| Royal Dutch Shell B | 2.2% |
| Microsoft | 2.1% |
| Chevron | 2.0% |
| AstraZeneca | 2.0% |
| Betfair Group | 2.0% |
| HSBC Holdings | 1.9% |
| IG Group | 1.8% |
* With cash. Source: Artemis as at 30 November 2010.
Risk Warning
Artemis Fund Managers Limited is authorised and regulated by the Financial Services Authority (www.fsa.gov.uk), 25 The North Colonnade, Canary Wharf, London, E14 5HS. Please read the Key Features before investing. The fund invests in fixed interest securities which are subject to market and credit risk and will be impacted by movements in interest rates. The fund may invest in higher yielding bonds. Changes to market conditions and interest rates can have a larger effect on higher yielding bonds, which may increase the risk to your capital due to a higher likelihood of default by the bond issuer. The fund may invest in geographic or market sectors (e.g. emerging markets or smaller companies) which can involve a higher degree of risk than usually associated with more mature markets and larger companies. The fund invests in exchange traded funds (ETFs) to gain exposure to commodities. Prices of the ETFs may be higher or lower than the value of the underlying investments. Prices of ETFs are also influenced by: supply and demand of the commodity involved; inflation, currency exchange and interest rates; and political, economic or financial events. The fund may hold derivatives with the aim of profiting from falling prices. If the related assets rise in value the fund will lose money. The fund may use derivatives to gain market exposure larger than its net asset value. Consequently, the value of the fund can increase or decrease to a greater extent than would be the case had no additional market exposure larger than the fund's net asset value been taken. If the fund has a high cash exposure at a time when markets are rising, the investment return could be less than if it were fully invested. The value of an investment, and any income from it, can fall as well as rise as a result of market and currency valuations and you may not get back the amount originally invested.
