Artemis Income Income Units

We met with Adrian Frost and Adrian Gosden, the co-managers of the Artemis Income Fund, for an update on performance and where the fund is currently invested.

Since the beginning of the year the managers have been repositioning the Artemis Income Fund into more defensive sectors. This is where the team are currently seeing the best value in the market, and these sectors could offer the fund some cushioning in volatile markets.

These defensive stocks include companies such as Centrica, the energy company, and AstraZeneca, one of the world’s largest pharmaceutical companies. Utility and pharmaceutical companies can perform well even in adverse market conditions; people continue to heat their homes and pay for medicine regardless of the economic situation. The managers have also increased their exposure to oil stocks that have grown their dividends.

Artemis see little point in taking on excessive risk for only a small amount of additional income, i.e. a 6% yield rather than a 5% yield, and the portfolio is positioned accordingly. Some banking stocks, including Alliance & Leicester and HBOS, have been sold recently.

They have also sold some of the more consumer-orientated holdings such as DSG, Marshalls, and Rank. WH Smith and Halfords, however, are two companies that the fund holds that both seem to be bucking the slowdown in the retail sector.

Adrian Frost and Adrian Gosden have recently invested about 4% of the portfolio in corporate bonds. They feel a potential total return in excess of 9% means they can invest in some good bonds that represent excellent value.

About 16% of the portfolio is currently invested in European stocks. Having previously been fairly negative towards the region, Adrian Frost and Adrian Gosden currently believe some European companies will be able to grow, or at least maintain, their dividends during difficult market environments. Their investments here are mostly in very large companies, so the decision for Artemis is really one of whether to hold a large multinational telecoms company based in Europe (Telefonica) or one based in the UK (Vodafone). Their analysis suggests the European oil stocks they own have helped performance, as has the pharmaceutical company Bayer. Currently these are the only three sectors in which they have exposure abroad.

Artemis Income remains one of our favourite equity income funds. The fund has out performed the peer group over both the short and longer term. We continue to believe investors will be well served by the fund over the longer term and we are pleased to include it in the Wealth 150, a list of our favourite funds in each sector.