Event Voice: Your Questions Answered by Artemis at the recent Fixed Income Market Focus event

Stephen Snowden, Head of Fixed Income, Artemis Fund Managers discusses the Artemis Short-Duration Strategic Bond Fund.

What are you trying to achieve for investors and what role could your fund play in an investor's portfolio? 

This is a lower risk fixed bond fund where most of the assets are allocated to short-dated Investment Grade bonds. Lower risk means that in the example of Investment Grade bonds, a shorter maturity index will have about 30% of the volatility of the all-maturity index. Now, ordinarily, investors sacrifice yield by moving to shorter dated instruments. This is typically because of what's called a "term premium", i.e. that borrowers need to pay more to borrow funds for let's say 10Yrs, vs. let's say 2Yrs. Historically an investor could expect to earn an average of 1% "extra" yield by lending to companies for 10Yrs vs. 2Yrs. This is no longer the case – currently shorter dated fixed income offers close to the same yield.  Over and above the core allocation to short-dated Investment Grade, this fund uses allocations to both government bond strategies and to higher quality short-dated High Yield bonds to deliver distinct alpha through credit selection and cross market opportunities. With central banks moving in different directions in 2025 it is a rich opportunity environment for funds which can exploit global opportunities within rates and credit. And with our government bond and credit allocations showing low correlation in returns, it increases diversification and delivers an overall better risk return profile relative a standard short-dated investment grade portfolio. 

What are the big opportunities and risks for your strategy in 2025?

This is not a big opportunities fund. As a lower risk bond fund, our objective over time is to deliver an much better return than cash with an modest amount of volatility. This have been achieved over the last five years despite the material headwinds facing the bond markets in the post pandemic inflationary boom. The fund is designed to be a much more interesting alternative to cash and other defensive assets such as absolute return bond funds, money market funds and short-dated corporate bond funds, that's the big opportunity! There are always risks in all funds, but as a lower beta strategy with the bulk of assets in short-date investment grade corporate bonds, are worries are modest. The biggest risk is opportunity cost. Inflation could moderate much faster than expected which in turn could lead to policy rates falling much further and faster than markets expect. Whilst that would be great for our fund, it would be much better for an all-maturities bond funds which has tow or three times the amount of interest rate risk.

Can you identify a couple of key investment opportunities you are playing at the moment in the portfolio? 

 Key investment opportunities that are currently in the portfolio are:

• Yield curves need to be steeper to accommodate the glut of government bond issuance and the risk of inflationary echoes in 2025 and 2026.
• The ability of countries to cope with higher rates is constrained at the government level, rather than the household and corporate level. We are positioning for lower policy rates in the UK and the US. Our key macro view in 2025 and 2026 is that the UK and US economies don't need to go back to pre-pandemic levels of policy rates but they can't deal with rates over 4%.
• Short Dated High yield is an extremely compelling trade given callability of debt and % of HY bonds still trading below par – the "jump to par" upgrade in yield delivered to portfolios.

Stephen Snowden is Head of Fixed Income at Artemis Fund Managers

Visit the Artemis Short-Duration Strategic Bond Fund page 

Important information

FOR PROFESSIONAL INVESTORS AND/OR QUALIFIED INVESTORS AND/OR FINANCIAL INTERMEDIARIES ONLY. NOT FOR USE WITH OR BY PRIVATE INVESTORS. 

This is a marketing communication. Before making any final investment decisions, and to understand the investment risks involved, 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.

CAPITAL AT RISK. All financial investments involve taking risk and the value of your investment may go down as well as up. This means your investment is not guaranteed and you may not get back as much as you put in. Any income from the investment is also likely to vary and cannot be guaranteed.

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.

Third parties (including FTSE and MSCI) whose data may be included in this document do not accept any liability for errors or omissions. For information, visit www.artemisfunds.com/third-party-data.

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 statements are based on Artemis' current opinions and are subject to change without notice. They are not intended to provide investment advice and should not be construed as a recommendation

Issued by Artemis Fund Managers Ltd which is authorised and regulated by the Financial Conduct Authority.