Investors should not make any knee-jerk decisions following the news that Adrian Gosden is to step down as co-manager of the £6.1bn Artemis Income fund, according to industry experts.
The news broke today that Gosden, who has co-managed the highly popular core fund since October 2003, will leave Artemis at the end of the month – a revelation that may surprise his unit-holders given the strong reputation he and his colleague Adrian Frost had developed as a duo.
“In his time with us, Adrian has made a considerable contribution to Artemis. He will leave with our thanks and very best wishes,” Mark Murray, senior partner at Artemis, said.
Frost initially launched the strategy in January 2002 and Gosden was brought in as his co-manager in October 2003.
According to FE Analytics, Artemis Income has been the third best performing portfolio in the IA UK Equity Income sector with returns of 217.47 per cent, beating the FTSE All Share by more than 60 percentage points in the process.
Performance of fund versus sector and index under Frost & Gosden
Source: FE Analytics
Though the managers have tended to run a slightly more contrarian portfolio than many of their ‘core fund’ rivals, Artemis Income has still been in the top decile for its annualised volatility, maximum drawdown and risk-adjusted returns (as measured by its Sharpe ratio).
Also, thanks to the managers’ more contrarian approach, not only has the fund tended to offer a higher yield than its average peer, it has also been one of the best dividend producing vehicles in the peer group over the longer term.
FE data shows that investors who bought £10,000 worth of units in January 2004 would have earned £6,922.86 in income by the start of 2016, with Frost and Gosden having only lowered their distribution in two of the last 10 calendar years.
Artemis Income’s dividend history
Source: FE Analytics *figures based on a £10,000 investment in January 2004
As such, the fund has become one of the highest rated members of the IA UK Equity Income sector. The likes of Square Mile, for instance, had awarded it with their AA rating with the team’s experience and focus on free cash flow as reasons behind that.
However, not only is Gosden’s decision to leave somewhat of a shock, but it is fair to say Artemis Income has started to perform far more in line with its peers over recent times.
Though it has beaten the FTSE All Share in each of the past five calendar years, its returns have been within 150 basis points of the sector average in each of those. 
Again, it must be noted that the fund has therefore outperformed (albeit in the second quartile) over five years, but this has come at a time that when the fund’s AUM has surged. Like a number of its peers, it took a great deal of inflows following Neil Woodford’s departure from Invesco Perpetual in 2013/2014.
As such, the likes of Square Mile have warned about its significant size.
“The increase in the fund size is a potential concern,” Square Mile said. “The team do tend to focus on stocks with larger capitalisations, although we note that the opportunity to consider companies with smaller market capitalisations has been diminished.”
Indeed, following the changes to the management team, Square Mile has now suspended its rating for the fund.
Therefore, with its sizeable AUM and the news that Gosden will be leaving imminently, should investors in Artemis Income be concerned?
Psigma’s Daniel Adams doesn’t think so. He has been a long-term backer of Artemis Income and given the large majority of its fund management team remains intact (plus the fact there is no news as to where Gosden is going), he sees no reason for unitholders to sell their stake.
He says it is one of the best core UK equity income funds available and argues that it is unlikely to be hit by any significant outflows following this news.
“We don’t typically make knee-jerk reactions to this sort of news anyway, but we will continue to back the fund,” Adams said.
“They already have a strong, experienced team in place with Adrian Frost leading the line which gives us confidence. Having that team in place really helps because when you look back when other sole managers have left a fund, a lot of the time that performance has been down to that manager so the fund sees outflows as a result.”
“Artemis Income might see some outflows, of course, but I think most investors will continue to back Frost and his team.”
Ben Willis, head of research at Whitechurch, agrees, arguing that it will be “business as usual” for the fund” despite Gosden’s departure. He says that given Frost will continue to run the fund for the foreseeable future (and as Nick Shenton, who joined as co-manager in 2014, will remain at the group) he sees no immediate change to the status quo.
“Frost has made a formal commitment to manage the fund for the next three years, which is partly to appease shareholders I’d imagine but it is certainly the right sort of noises investors will want to hear,” Willis said.
However, though Willis rates Frost highly, he doesn’t own Artemis Income due to its size. He also points out how the fund’s performance has become more in line with the peer group average over recent years (as shown in the graph below), but that it is unlikely Gosden’s departure will make too much of a change.
Fund’s one year rolling returns relative to the sector over 8yrs
Source: FE Analytics
“My point is though that there isn’t a huge amount you can do with that fund. It has become a victim of its own success in some respects as, because of its size, its performance is going to be dull and boring.”
Of course, there is the argument that as Frost and Gosden have worked as a duo for such a long period of time, the decision making behind the scenes may well be affected now one of the managers will be leaving.
For the time being, Willis says this shouldn’t be an issue.
“He will have had a fair bit of input, but because of its size, it’s not like they have really been able to scratch around for ideas further down the market cap. It is always going to hold the large FTSE 100 stocks to generate an income.”
“However, they took on Nick Shenton and he has Adrian Frost’s backing, plus they are looking to add further resources – so I wouldn’t be concerned if I were in the fund. But, the proof of the pudding will be in the eating so let’s see what happens to performance.”
Artemis Income currently yields 4.07 per cent and holds 70.7 per cent in large-caps. Its top 10 holdings include AstraZeneca, GlaxoSmithKline, Vodafone and Shell though it also has off-benchmark bets on the likes of 3i, Lloyds and Informa. It has an ongoing charges figure of 0.79 per cent.