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.
We define liquidity as the ability to buy and sell shares easily, and without affecting unduly the shares’ underlying price. We recognise that we offer investors daily liquidity (the ability to buy and sell units in the Artemis UK Smaller Companies Fund every working day), while holding company shares which, in relation to normal daily trading volumes, do not necessarily trade every day.
So how do we think about it; how do we manage it; and do the rewards justify this liquidity risk?
Unquoted holdings
The fund’s minimal unquoted holdings are valued at zero; so they make up 0% of the fund’s value. We hold a diversified portfolio of holdings – typically between 60 and 90 companies – with the largest holding never making up much more than 3% of the fund.
A broad investor base
The fund has been established for over 25 years; has not experienced a recent period of rapid inflows; and has a broad investor base – all of which help to reduce, though not of course to eliminate, the risk of a period of very rapid outflows.
A broad range of holdings
We diversify the fund’s holdings by size. Currently we have slightly less than 3%* of the fund invested in ‘micro-cap’ companies* (those whose market capitalisations are less than £100m).
That is given some balance by having approximately half of the fund in companies whose market capitalisations are more than £500m*.
A long-term view
We continue to run the fund with a long-term perspective: each investment decision is taken with a view to that company’s prospects over at least three to five years. Any investments in equities will be subject to volatility. We would expect our approach, favouring companies with strong balance sheets and good cash generation, to help to lessen this volatility over time.
Strong governance
Added to the above, the fund benefits from Artemis’ robust framework for governance. It includes an investment risk team, reporting to Artemis’ Chief Risk Officer and responsible for monitoring the liquidity profile of the fund. It is there to ensure that potential redemptions (investors seeking to sell their investments in the fund) can be handled adequately; and within the principle of TCF (Treating Customers Fairly).
Do the rewards justify this liquidity risk?
To the final part of the question – ‘do the rewards justify this liquidity risk?’ From a historical perspective, the answer is ‘yes’ – in spades.
Over the last 60 years, the UK’s smaller companies have outperformed large-cap companies (the FTSE 100 Index) by 4% per annum**. The smallest companies – ‘micro-caps’ – have performed even better, outperforming large-cap stocks by 6% per annum**.
Optimising the prospects of capturing the ‘small-cap premium’, and further mitigating the liquidity risk, requires a long-term approach – from us and our clients.
* Source Artemis as at 30 April 2024
** Source Numis Smaller Companies Index Annual Review 2020 by Scott Evans, Paul Marsh & Elroy Dimson
FOR PROFESSIONAL INVESTORS AND/OR QUALIFIED INVESTORS AND/OR FINANCIAL INTERMEDIARIES ONLY. NOT FOR USE WITH OR BY PRIVATE INVESTORS.