Event Voice: Your Questions Answered by Artemis

clock • 5 min read
Event Voice: Your Questions Answered by Artemis

Partner Content: Raheel Altaf, Fund Manager of the Artemis SmartGARP Global Emerging Markets Equity Fund, sponsor for the 8th of February's Channel Islands Fund Selector, discusses Artemis' proprietary stock screening tool and their portfolio.

Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?

We believe inefficiencies exist in global stock markets because investors do not always act rationally. We seek to exploit the effect of investors' behavioural biases by being more objective, rigorous and systematic in both our analysis of companies' financial characteristics and in our decision-making. 

To assist us, we use SmartGARP®, Artemis' proprietary stock screening tool, which has been developed and refined over the last 30 years. It puts a range of fundamental stock data, behavioural and market insights into a systematic framework, which makes it easier to assess the relative attractiveness of companies. Among other things, it looks for stocks that are enjoying strong growth in earnings, seeing consistent upgrades to their forecast profits and that are benefiting from macroeconomic trends, yet which are (temporarily) unpopular and so trade on below average valuations.  

Companies which have satisfied the SmartGARP screen then go through a process of due diligence. Our objective is to establish whether there is substance behind the attractive characteristics SmartGARP has identified. The emphasis here is on identifying non-operational factors that may be skewing the financial characteristics and therefore present some risks to the investment story. 

We believe diversification is necessary to navigate markets over longer periods of time and therefore spread our capital sector and countries all around the globe, resulting in a portfolio of typically 80-120 companies. 

The strategy has been managed by Raheel Altaf and Peter Saacke since launch in 2015, supported by the broader SmartGARP investment team. The strategy is one of five that follow the SmartGARP process.  

How are you currently positioning your portfolio?

We have experienced years, where speculative behaviour, on the back of surging share prices, has reduced the focus on fundamentals. This has subsequently created excessively high valuations in parts of the market that have now started to unwind. We think this unwind has further to run. We see less risk in companies that trade on low valuations and therefore prefer to have more of our capital allocated to this part of the market. 

The strategy's bias towards value stocks has been substantial for some time, with the strategy trading on a p/e of 6.9, compared to the benchmark index at 11.7 (a 41% discount)*. Despite this deep valuation discount, quality and growth measures are also favourable compared to the benchmark index. For instance, the fund has a higher return on equity than the market and our companies have consistently grown earnings, dividends and cash flows well in excess of the market. 

Our largest country overweights are in Brazil, China and Korea and the largest underweights are India, Taiwan and Saudi Arabia. At the sector level, financials, consumer discretionary and utilities feature as the largest overweights with materials, media & entertainment and software & services the largest underweights.  

Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.

While pessimism in China has reached extreme levels, we believe there is no shortage of high-quality companies to be found in the region. Today you can buy them at depressed valuations. The slightest change in sentiment is likely to lead to significant upside. Whether it is targeted policy from government, or signs from companies' earnings statements suggesting businesses have navigated the difficult conditions well, we think the risk reward remains favourable overall.  Examples of stocks we hold in China are PICC Property & Casualty (insurance), SinoTrans (logistics) and China Petroleum. 

Korea has seen some interesting developments in the last few weeks. Signs of progressive shareholder return policies have created some enthusiasm towards the beaten down areas of the market. Korea's finance minister vowed to narrow the "Korean discount", encouraging companies to boost stock valuations. On the corporate side, buybacks and dividends are surprisingly positive. The economy is benefiting from a pickup in exports, particularly in the tech sector. We hold around 12.5%** in the fund in companies trading below book value. Not all of these are going to revert to more normal valuations, but the catalysts seem to be in place to provide tailwinds to these positions.  

Raheel Altaf is a Fund Manager of the Artemis SmartGARP Global Emerging Markets Equity Fund


*Artemis, Bloomberg as at 31 January 2024 
**Artemis 14 February 2024 
This is a marketing communication. Refer to the fund prospectus, available in English, and KIID/KID, available in English and in your local language depending on local country registration, from www.artemisfunds.com or www.fundinfo.com, before making any final investment decisions. CAPITAL AT RISK. All financial investments involve taking risk which means investors may not get back the amount initially invested. 
Investment in a fund concerns the acquisition of units/shares in the fund and not in the underlying assets of the fund. 
Reference to specific shares or companies should not be taken as advice or a recommendation to invest in them. 
For information on sustainability-related aspects of a fund, visit www.artemisfunds.com. 
The fund is a sub-fund of Artemis Investment Funds ICVC. For further information, visit www.artemisfunds.com/oeic. 
Any research and analysis in this communication has been obtained by Artemis for its own use. Although this communication is based on sources of information that Artemis believes to be reliable, no guarantee is given as to its accuracy or completeness. 
Any forward-looking statements are based on Artemis' current expectations and projections and are subject to change without notice. 
Issued by Artemis Fund Managers Ltd which is authorised and regulated by the Financial Conduct Authority.