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The fund designed to sit alongside Woodford, Frost & Co

31 July 2014

Jacob de Tusch-Lec’s top-performing Artemis Global Income fund has one of the lowest weightings to FTSE 100 names in its sector, making it ideal for UK investors who want to reduce their single-stock risk.

By Alex Paget,

Senior Reporter, FE Trustnet

Artemis Global Income is the perfect choice to sit alongside UK Equity Income funds within an investor’s portfolio, according to its manager Jacob de Tusch-Lec.

Investors are often told not to be over reliant on their UK Equity Income funds as it is a very concentrated sector, with the large majority of experts recommending they use global funds in order to diversify their income stream.

However, as FE Trustnet recently highlighted, the large majority of IMA Global Equity Income funds still have a high level of exposure to the FTSE’s largest dividend-paying stocks, with the average fund in the sector holding roughly 20 per cent in the UK.

One portfolio that is going against the grain is de Tusch-Lec’s five crown-rated Artemis Global Income fund, which has just 8 per cent invested in the domestic market.

“That [8 per cent] is a lot for me,” de Tusch-Lec said.

“I’ve been a firm believer that this fund is for UK investors who want something different, because UK equity income is such a powerful beast. This isn’t about me taking a view on AstraZeneca, HSBC or GlaxoSmithKline, but it is more about giving investors something that they don’t already have.”

“Generally I am underweight most areas that other managers are overweight. Being underweight UK equities can be a headwind like if the UK is ripping it or if sterling is strong, but I have a large universe of companies to choose from.”

One of the major reasons why global equity income managers have maintained a relatively high weighting to the UK is because of its strong dividend culture, which helps them to deliver an above-average level of income.

Also, as an FE Trustnet article pointed out last month, the majority of Global Equity Income funds that have maintained a consistently low weighting to UK equities have struggled against the sector over recent years.

However, the £1bn Artemis fund – which has had a UK weighting as low as 3 per cent in the past – has managed to buck that trend.

According to FE Analytics, it has been the best performing portfolio in the sector since its launch in July 2010, with returns of 83.68 per cent, beating its MSCI AC World index benchmark by 33.1 percentage points.

Performance of fund vs sector and index since July 2010

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Source: FE Analytics

The fund is also top decile over one and three years.

Although de Tusch-Lec has kept a very low weighting to UK stocks, our data shows that the fund has paid out an above-average amount of income since its launch.

If an investor had invested £1,000 into the Artemis fund the day it was launched, they would have earned £201.99 in dividends. The average fund in the sector has paid out £183.33 on that same initial stake over this time.

In order to make sure there are not too many stock overlaps with UK equity income funds, de Tusch-Lec tends to invest in less popular UK companies.


Of the three UK companies he holds, two of them – 3i Group and Merlin Entertainment – do not feature in any IMA UK Equity Income fund’s list of top-10 holdings. His other UK stock is Bank of Georgia.

“My UK exposure is through UK-listed names, not companies which derive their earnings from the UK,” he explained.

“Bank of Georgia is a FTSE 250 name, but it is headquartered in Tbilisi. For me, it is a great way of playing frontier market growth but at the same time getting really good corporate governance.”

De Tusch-Lec says another way his fund differs from others in the IMA Global Equity Income sector is that his primary focus is on delivering a well-rounded total return. To do that, he says he keeps a very flexible strategy.

“We want high-yielding companies and we want companies that can grow their dividend, but at the end of the day, total return is an important aspect. Dividend yield isn’t everything.”

“You can have companies with good dividend yields, but that dividend isn’t covered. At the same time, you can have companies that have a growing dividend, but they have achieved that by levering up their balance sheet.”

“We are quite style-agnostic and the reason behind that is because you can get dividend yields from different sources and those sources will perform differently at different points in the cycle.”

The fund currently yields 3.7 per cent.

The manager’s largest regional weightings are to North America and Europe ex UK, which combined make up around 75 per cent of his portfolio. He also holds 12 per cent in emerging markets and 5.5 per cent in Japan.

While de Tusch-Lec holds several popular global stocks such as Pfizer and Merck, he has a bias towards mid caps within the fund because he is concerned about how large cap bond-proxy stocks will perform as central banks tighten monetary policy.

He says that because of this, his dividend growth will “calm down” over the next 12 months as he rebases his portfolio.

Although the fund has outperformed since launch, it hasn’t yet seen a full market cycle.

Our data shows that the majority of its outperformance has come during rising markets, with the fund turning in top-decile returns in 2012 and 2013. It did, however, underperform the sector in the falling market of 2011.

Performance of fund vs sector and index in 2011

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Source: FE Analytics

Despite this, de Tusch-Lec says his Artemis Global Income fund isn’t the type of portfolio that will only outperform when markets are buoyant.


He says that as he has a flexible style and will switch the portfolio quite aggressively between cyclicals and high-quality defensive stocks, the fund can deliver cross-market returns. Nevertheless, he says that many of his clients are still surprised that his fund has been top decile in this year’s flat market.

Performance of fund vs sector and index in 2014

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Source: FE Analytics

Artemis Global Income has become increasingly popular with fund of funds managers recently. According to FE Analytics, eight funds in the IMA universe count it as a top-10 holding.

They include Gary Potter and Rob Burdett’s F&C MM Navigator Distribution fund, FE Alpha Manager David Coombs’ Rathbone Multi Asset Total Return Portfolio and the five crown-rated HSBC Income Fund of Funds.

Richard Scott has held the portfolio in his PFS Hawksmoor Distribution and Vanbrugh funds since launch.

He says that it is a good choice for UK investors as not only does it offer diversification, but because of the manager's “pragmatic/active” style.

“To be frank, except for the odd blip, managers have been paid for taking risks over recent years. However, we would trust de Tusch-Lec to be sufficiently pro-active with the fund if market conditions were to worsen,” Scott said.

He added: “While the fund may produce negative returns in falling markets, you know you aren’t getting a beta junky.”

Artemis Global Income has an ongoing charges figure (OCF) of 0.87 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.