Artemis: Artemis Monthly Distribution Fund: a simple approach to multi-asset investing

Economic, political and market conditions have changed beyond recognition over the past 12 years, but the Artemis Monthly Distribution Fund’s straightforward multi-asset approach to delivering returns has remained consistent. We believe the returns it has produced speak for themselves.

FOR PROFESSIONAL INVESTORS AND/OR QUALIFIED INVESTORS AND/OR FINANCIAL INTERMEDIARIES ONLY. NOT FOR USE WITH OR BY PRIVATE INVESTORS. CAPITAL AT RISK. All financial investments involve taking risk and the value of your investment may go down as well as up. This means your investment is not guaranteed and you may not get back as much as you put in. Any income from the investment is also likely to vary and cannot be guaranteed.

When we launched the Artemis Monthly Distribution Fund 12 years ago, the world was a different place. Donald Trump was best known as the eccentric host of The Apprentice. Greece, rather than the UK, looked likely to become the first country to quit the EU. And conditions in financial markets were entirely different.

In May 2012...

• Interest rates in the UK stood at just 0.5%;
• In the US, the Fed funds rate was 0.25%.

Meanwhile, in the bond market, a traditional hunting ground for income-seeking investors:

• The yield on 10-year UK Gilts was just 1.85%.
• 10-year US Treasury yields were lower still, at 1.74%.

Viewed in one light, Artemis’ decision to launch a fund explicitly designed to deliver income into this environment might have appeared to be wilfully contrarian. It wasn’t. It reflected our awareness of the growing pressure on clients who need their investments to generate a steady stream of income.

Equally, we were conscious that many investors want an investment strategy that could deliver total returns more smoothly than is possible through a 100% allocation to equities. Stockmarkets tend to deliver excellent long-term capital gains but they do so unpredictably and with levels of volatility that many find off-putting.

A variant of the time-honoured ‘60-40’ strategy – where a 40% allocation to bonds helps to offset the volatility of a 60% allocation to equities - seemed to offer a simple solution. Our refinement was to place the emphasis on targeting bonds and equities that generate a useful level of income and give clients the option to harness the power of compounding by patiently harvesting or reinvesting their distribution payments.

What we invest in

Source: Company results/Bloomberg as of 27/07/2024

Artemis Monthly Distribution Fund breakdown

Source: Artemis as at 30 June 2024

The power of compounding

Over the 12 years since its launch, the Artemis Monthly Distribution Fund has not only delivered a regular stream of income, but it has also, through the powerful effect of compounding, delivered a compelling total return. By the end of June 2024, the fund had returned 166% since its launch versus an average return of 76% from its peer group, the IA’s Mixed Investment 20-60% Shares sector, a large and broad peer group of 180 multi-asset funds.

Percentage growth

Past performance is not a guide to the future. Source: Lipper Limited from 21 May 2012 to 30 June 2023. All figures show total returns with dividends and/or income reinvested, net of all charges. Performance does not take account of any costs incurred when investors buy or sell the fund. Returns may vary as a result of currency fluctuations if the investor’s currency is different to that of the class. This class may have charges or a hedging approach different from those in the IA sector benchmark.

Cumulative return

Past performance is not a guide to the future. Source: Morningstar Direct, class I distribution units in GBP from 21 May 2012 to 30 June 2024. All figures show total returns with dividends and/or income reinvested, net of all charges. Performance does not take account of any costs incurred when investors buy or sell the fund. This class may have charges or a hedging approach different from those in the IA sector benchmark.

Those returns have been delivered through a 12-year period that was initially defined by sluggish economic growth, deflation worries, near-zero interest rates and QE. More recently, returns continued to compound through a spike in energy prices, a land war in Europe, rampant inflation, sharp hikes in interest rates and the withdrawal and reversal of QE.

The fund maintained a stable income against a backdrop of falling yields

Almost as soon as we launched the fund, the pressure to find sources of investment income intensified. In July 2012, the Bank of England signalled that, in response the Eurozone crisis, it would resume quantitative easing (QE). Initially, it signalled that it would increase the total value of bonds it had bought since the financial crisis to £375 billion. By the time it eventually called time on QE in late 2020, the Bank would have poured £895 billion into the bond market. For its part, the US Federal Reserve was about to embark on third round of quantitative easing (QE3). It would eventually commit US$ 8 trillion to QE¹.

10-year UK Gilt yield %

Source: LSEG Datastream

Stable income over time against a backdrop of falling yields

Source: Artemis, class I distribution units in GBP as at 31 March 2024.

While the merits of QE are still a matter of debate, it had a number of unpleasant side effects. One was to push government bond yields lower, making life progressively harder for investors who needed their capital to generate a meaningful stream of income. Our simple, multi-asset income-focused strategy offered a solution. Its high-yield bonds continued to generate a satisfactory level of income while its equities delivered a growing stream of dividends and the potential for capital gains.

Performance annualised

Please remember that past performance is not a guide to the future. Source: Lipper Limited, mid to mid in sterling (or the indicated currency) to 30 June 2024. All figures show total returns net of fees with dividends and income reinvested.

A straightforward, ‘plain-vanilla’ approach

Since inception, the fund has outperformed its peers and generated a compelling total return – or a steady stream of income payments – by consistently applying the same straightforward multi-asset approach:

• It doesn’t rely on exotic derivatives.
• It doesn’t employ leverage (debt) to enhance returns.
• It doesn’t invest in unlisted ‘private’ assets.
• It doesn’t invest in the riskier end of the high-yield market or in emerging-market debt.
• It doesn’t invest in volatile (and often expensive) ‘growth’ stocks - companies that are prepared to forgo profits today in the hope of delivering profits the distant future.

Instead, we take a ‘plain vanilla’ approach to asset allocation, investing in:

• The shares of profitable, dividend-paying companies around
  the world;
• Investment-grade government and corporate bonds; and
• High-yield bonds.

While the managers fine-tune the balance between bonds and equities to reflect the shifting balance of relative opportunities and valuations, its ‘neutral’ asset allocation is a roughly 50-50 split between the two asset classes.

So, the returns that the Artemis Monthly Distribution Fund has produced over the past 12 years haven’t been borne from aggressive asset allocation or in deploying exotic financial instruments. Instead, those returns have been amassed drawing on Artemis’ longstanding expertise in investing for income.

FOR PROFESSIONAL INVESTORS AND/OR QUALIFIED INVESTORS AND/OR FINANCIAL INTERMEDIARIES ONLY. NOT FOR USE WITH OR BY PRIVATE INVESTORS.

Capital at risk. All financial investments involve taking risk and the value of your investment may go down as well as up. This means your investment is not guaranteed and you may not get back as much as you put in. Any income from the investment is also likely to vary and cannot be guaranteed.

This is a marketing communication. Before making any final investment decisions, and to understand the investment risks involved, refer to the fund prospectus (or in the case of investment trusts, Investor Disclosure Document and Articles of Association), available in English, and KIID/KID, available in English and in your local language depending on local country registration, available in the literature library.

Investment in a fund concerns the acquisition of units/shares in the fund and not in the underlying assets of the fund.

Reference to specific shares or companies should not be taken as advice or a recommendation to invest in them.

For information on sustainability-related aspects of a fund, visit the relevant fund page on this website.

For information about Artemis’ fund structures and registration status, visit artemisfunds.com/fund-structures

Any research and analysis in this communication has been obtained by Artemis for its own use. Although this communication is based on sources of information that Artemis believes to be reliable, no guarantee is given as to its accuracy or completeness.

Any statements are based on Artemis’ current opinions and are subject to change without notice. They are not intended to provide investment advice and should not be construed as a recommendation.

Third parties (including FTSE and Morningstar) whose data may be included in this document do not accept any liability for errors or omissions. For information, visit artemisfunds.com/third-party-data.

Important information
The intention of Artemis’ ‘investment insights’ articles is to present objective news, information, data and guidance on finance topics drawn from a diverse collection of sources. Content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security or investment by Artemis or any third-party. Potential investors should consider the need for independent financial advice. Any research or analysis has been procured by Artemis for its own use and may be acted on in that connection. The contents of articles are based on sources of information believed to be reliable; however, save to the extent required by applicable law or regulations, no guarantee, warranty or representation is given as to its accuracy or completeness. Any forward-looking statements are based on Artemis’ current opinions, expectations and projections. Articles are provided to you only incidentally, and any opinions expressed are subject to change without notice. The source for all data is Artemis, unless stated otherwise. The value of an investment, and any income from it, can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested.