Artemis Global High Yield Bond

Investment process

With fewer than 100 holdings in their portfolio (from a universe of 3,500), this is comfortably one of the higher-conviction funds in the high yield market. The managers tend to have less focus on the larger players in the market, preferring to explore further down the high yield spectrum – where they feel they can take advantage of greater market inefficiencies. The sweet spot tends to be not in the 400 very largest companies in terms of market capitalisation, but in the next 600 down the market cap scale.

The team starts by removing all fundamental ESG concerns, as well as avoiding some of the largest, over-covered index-dominated names. They also seek to remove names they feel have poor upside potential, as well as avoiding deeply distressed bonds (there is a strong preference for holdings in profitable businesses). While the fund is global in nature, the team also avoids emerging markets for risk purposes.

The result is a universe of some 800 individual issuers. From here, a “triage” fundamental analysis is undertaken. The team will look at annual reports/presentations to assess how a business makes money and what is the edge over its peers and whether this can be maintained. The process is exclusionary, with the team looking for reasons to say no to a business.

This allows the managers to spend more time on the 400 or so remaining issuers, with a deeper analysis undertaken – such as updating financial models and company reports. The final portfolio has roughly 100 names, with a further 70 sitting on the reserve bench. These reserves are companies the managers are comfortable with but are looking for a more attractive entry point.

Artemis Global High Yield Bond fund can and does hold some of the larger players in the high yield space – although these tend to be either rising stars or fallen angels (companies which have fallen from the investment grade market).