Fund in Focus: Artemis Income

Looking for a last minute ISA idea? Morningstar analyst's have given Artemis Income a Gold Rating thanks to the exceptional manager and consistant strategy

Simon Molica 20 March, 2014 | 2:54PM
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Artemis Income is an excellent choice for investors seeking income from their UK equity exposure.

The fund features a distinguished pairing in Adrian Frost and Adrian Gosden, who have worked together here since Oct 2003. However, Frost’s history on this fund predates 2003; he took charge in Jan 2002. The managers share an impressive amount of industry experience and they also draw upon the expertise of their fellow Artemis managers. 

They seek cash-generative companies by applying cash flow and dividend screens to their equity universe with the help of SmartGARP; Artemis' proprietary stock-screening model. They believe that focusing on the free cash flow yield is the equivalent of valuing the company as though it were a bond. They subsequently compare the free cash flow yield with less risky rates of return – such as money markets and bonds – and the focus on free cash flow gives greater flexibility than yield alone. There is also a more qualitative element to their strategy in assessing management impact and their ability to allocate capital efficiently.

Once the managers have narrowed their opportunity set, they focus on price/free cash flow as a valuation metric, taking into account both the level and direction of cash flow and its sustainability. We believe the strategy offers a well-thought-out process, which is well-suited to primarily generating a desired income for investors. 

Their flexible strategy has provided investors with strong returns and plump yields over the long term. The poorer relative performance witnessed over 2009-10 has not dented our high level of conviction. In 2009 the fund underperformed as the market rewarded indebted and highly cyclical companies, which the managers tend to avoid given their preference for relatively robust cash flows, and 2010’s relative performance was hindered by a lack of cyclical exposure. Since this period of poorer performance, recent returns have been much stronger. 

We believe the strong pairing of experienced managers Frost and Gosden combined with their robust strategy creates a compelling offering; hence we rate the fund Gold.

The fund is suitable for a core portfolio holding for investors seeking UK equities with an income yield.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Artemis Income R Inc2.30 GBP-0.92Rating

About Author

Simon Molica

Simon Molica  is a portfolio manager for Morningstar Investment Management