Fund Manager's Comment
Data as at 31 October 2008
Government bonds
Not a good month (though returns were just positive). Fears of the cost of the government bailouts of the banking sector, and the automatic rise in borrowing as the economy slows, weighed on the market.
Interest rate cuts were forthcoming (globally coordinated), and more are expected. This should at least support shorter-dated bonds.
Investment grade
The market remains very distressed. Forced selling from hedge funds and other structured products, as well as the prospects of more issuance, undermined the market.
Bank bonds did well as the government bailed out many banks around the world. Bonds issued by companies suffered badly.
High yield
A terrible month for high yield with distressed selling across the board, forcing prices significantly lower.
Our big weighting to bank bonds has been beneficial this month. Our relatively lighter weighting to high yield has not. We have been focussing towards increasing the bank weightings, taking advantage of distressed sellers. And we have added to our defensive high yield names, again, taking advantage of the distress out there.
The market has been significantly weaker over the month as a number of illiquid holdings have been marked lower by market-makers. This has been primarily among our investment grade holdings. We do not believe this reflects a significant increase in the default risk, but the reflection of a very low (or even negligible) appetite for risk among market-makers.
The high yield market is now pricing in the chance of defaults at 17% per year, which has not been seen since the depression of the 1930s. Bank stocks are pricing in a 40% default rate over five years. Again, we believe this is unconceivable, given that governments are supporting their banks. Credit markets are extremely cheap. There is far more distress than equity markets are currently pricing in. Forced selling from hedge funds and other structured products is creating this opportunity. We are taking advantage of this to add to our holdings. We believe there will be more forced selling. But when this stops, we will have the potential for equity-style returns.
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Awards
Strategic
Bond PDFKey Facts
| IMA Sector | £ Strategic Bond | |
|---|---|---|
| Sedol - Quarterly Dis | B09DMK3 | |
| Sedol - Quarterly Acc | B09DMJ2 | |
| Fund Size (Offer basis) | £275.0m | |
| Distribution Yield | 7.8% | |
| Unit Offer Price (Class Q distribution units) | 42.16p | |
| Unit Bid Price (Class Q distribution units) | 38.80p | |
| Unit Offer Price (Class Q accumulation units) | 49.09p | |
| Unit Bid Price (Class Q accumulation units) | 45.17p | |
| Valuation | 12 noon daily (UK business days) |
| Min. lump sum investment | £1,000 |
|---|---|
| Min. monthly investment | £50 |
| Launch | 1 June 2005 |
| Launch price | 50p |
| Initial charge | 5.25% |
| Annual Management Charge | 1.0% |
| Unit type | Distribution, Accumulation |
| Distribution Paydates | 30 Apr, 31 Jul, 31 Oct, 31 Jan |
| Year End | 31 March |
Class M units are available for investments over £25,000. For more information
please contact us.
Data as at 31 October 2008.
Performance
| Since Launch* | 3 Years | 1 year | 6 months | 3 months | |
|---|---|---|---|---|---|
| Strategic Bond Fund† | -9.7 | -11.2 | -19.7 | -17.4 | -16.1 |
| iBoxx Sterling non gilt† | -2.4 | -3.2 | -6.8 | -6.0 | -5.8 |
| Sector Average † | -12.1 | -12.6 | -15.6 | -13.5 | -11.8 |
| Position in Sector | 16 | 17 | 34 | 37 | 42 |
| Funds in Sector | 42 | 43 | 52 | 53 | 55 |
| Quartile | 2 | 2 | 3 | 3 | 4 |
Please remember that past performance is not a guide to
the future.
* Data from 30 June 2005, due to the fixed price period of the fund. Source:
Lipper Limited, bid to bid in sterling with net income reinvested to 31 October 2008. All figures show total returns. †Percentage Growth.
Sector is IMA £ Strategic Bond.
Percentage Growth
Artemis Strategic Bond Fund 12 Months to 30 September
| 2008 | 2007 | 2006 | 2005 | 2004 |
|---|---|---|---|---|
| -9.6 | 2.6 | 5.9 | n/a | n/a |
Further Discrete Performance periods.
Source: Lipper Limited, bid to bid in sterling with net income reinvested. All figures show total returns.
Value of £1,000 invested at Launch to 31 October 2008
Data from 30 June 2005, due to the fixed price period of the fund. Source Lipper Limited, bid to bid in sterling with net income reinvested to 31 October 2008.
Asset Allocation*
*Without cash. Source: Internal
Top Ten Holdings*
| LIFFE LONG GILT (EXP 29/12/08) LIF | 8.0% |
|---|---|
| Deutschland 5.25% 04/01/11 | 4.5% |
| Abbey National 7.125% 20/06/11 GBP | 1.8% |
| Argon Capital 8.162% PERP 05/10/12 | 1.8% |
| HSBC 6.375% 18/10/22 'EMTN' GBP | 1.8% |
| HBOS 6.305% PERP 18/10/17 GBP | 1.8% |
| DnB NOR 7.25% EMTN VAR 23/06/20 | 1.7% |
| TDC Senior FRNs | 1.7% |
| Credit Suisse 6.875% 07/06/49 GBP | 1.6% |
| UBS 6% EMTN 18/04/18 EUR | 1.6% |
* Without cash.
Source: Internal.
Market Sector Split*
| Banks | 15.1% |
|---|---|
| General Financial | 9.5% |
| Fixed Line Telecommunications | 7.3% |
| Travel & Leisure | 3.8% |
| Electricity | 3.5% |
| General Industrials | 2.9% |
| Oil & Gas Producers | 2.9% |
| Tobacco | 2.6% |
| Non-Life Insurance | 2.5% |
| Other | 49.9% |
* Without cash.
Sector Classification: FTSE Actuaries.
Source: Internal.
Risk Warning
All data is sourced internally unless otherwise stated. Issued by Artemis Fund Managers Limited, which is authorised and regulated by the Financial Services Authority (www.fsa.gov.uk), 25 The North Colonnade, Canary Wharf, London E14 5HS and is a member of the IMA. Artemis Fund Managers Limited is a member of the Artemis Marketing Group. We only market our own unit trusts. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. In order to offer a higher yield, a proportion of the Artemis Strategic Bond Fund will be invested in higher risk securities that may increase the risk to your capital. In particular, there can be no assurance that capital appreciation will occur in the early years as initial charges are levied on your investment and charges are not made uniformly throughout the life of your investment. Investments in fixed interest securities and bonds are subject to credit and market risk. The value of the underlying assets and therefore the value of units in this Fund will be impacted by fluctuations in interest rates and the perceived credit risk of an issuer.
The distribution yield reflects the amounts that may be distributed over the next twelve months as a percentage of the mid-market unit price of the fund as at the date shown. It does not include any preliminary charge and investors maybe subject to tax on distributions. The distribution yield is also the underlying yield for the fund.
