A globally-diversified, multi-cap equity income fund, which seeks to deliver a rising income with the potential for capital growth. The approach blends qualitative and quantitative disciplines and the fund has a value/contrarian flavour. Within its sector, the fund features in our 'All-Cap, Dynamic' category.
The fund’s KIID Synthetic Risk and Reward Indicator (SRRI) is 5. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 5 means the fund’s historic volatility is between 10% and 15%.
The fund’s SRRI score is in keeping with the peer group. The multi-cap nature of the fund with its broad range exposures, from core income stocks to special situations, can result in periods of higher volatility than global equity income peers. Different share classes could have differing SRRI scores.
The fund is managed by Jacob de Tusch-Lec and James Davidson. Mr de Tusch-Lec joined Artemis in 2005, having previously worked on pan-European equities at Merrill Lynch. He has managed the fund since launch. Mr Davidson joined the firm in 2018 and was appointed co-manager in May 2020.
The managers believe that the bedrock of a successful income strategy is a focus on companies that have strong free cash flow yields, where that cash flow is translated into robust dividend progression. In seeking greater opportunities, they consciously look further afield than the mega caps and has exposure to special situations and value-orientated stocks, as well as the more traditionally held, higher quality growth names.
The portfolio is diversified, featuring between 80 and 100 stocks, with no more than 5% in any one stock or 15% in any one sector. Allocation guidelines for the three types of stocks are: core income (40%-60% allocation), dividend growth (20%-40% allocation) and risk/special situations (10%-30% allocation). They are weighted according to the managers’ perception of the macro-economic backdrop and valuation picture. A third of the portfolio is typically invested in mid caps, with large and mega caps making up the remainder.
Fundamental stock research sits at the heart of the investment process. The focus is on identifying companies with robust financial metrics, compelling valuations and the ability to offer a yield premium above the market average. A universe of some 8,000 suitably liquid stocks is screened using a variety of filters, with a particular focus on companies’ ability to generate a decent, sustainable, and preferably growing, free cash flow. In excess of 30 filters are applied, mostly focusing on dividend potential in relation to earnings and balance sheet strength. Stocks flagged as interesting are thoroughly reviewed in order to validate the output from the screens. The primary judgement is centred on an assessment of the direction, volatility and sustainability of cash flow. Subsequently, a judgement is made on the likelihood of a company management’s ability to allocate capital wisely.
Bottom-up analysis is complemented by a macro-economic overlay, which operates at a regional and industry level with a view to highlighting valuation anomalies and thematic opportunities. With these thoughts in mind, the portfolio is then built around three types of income stocks: core income (quality and value attributes); dividend growth (quality and cyclical attributes); and, risk and special situations (value and cyclical attributes). The managers consider the merits of stocks in these three categories in the context of the economic cycle and investor trends.
Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above.
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