One of the key strengths here is the experienced team behind the fund. Mark Tyndall has managed the portfolio since September 2002 and he was joined by Jacob de Tusch-Lec in January 2006. Tyndall and de Tusch-Lec run the fund using Artemis’s in-house quant model, SmartGARP. The model allocates scores to stocks based on the bottom-up factors of value, growth, estimate revisions, momentum and accruals coupled with the top-down factors of macro trends and investor sentiment. It then ranks the 7,000-plus universe based on the aggregate score from each factor.
The SmartGARP model has generated strong returns over the long term, not just at this fund, but also at k/uk/snapshot/snapshot.aspx?lang=en-GB&id=F0GBR04INV">Artemis European Growth
While there’s much to like about this fund, it has some quirks common to most quant funds. For example, quant run portfolios can change quickly. To illustrate, this fund’s exposure to the energy sector rose by 15 percentage points between March 2008 and July 2008. Such drastic shifts in sector exposure can change the fund’s risk profile considerably over short periods of time. Furthermore, quant funds also tend to have high levels of trading activity – the fund’s turnover in 2007 was a staggering 530%, which also amounts to high trading costs. That said, the management has taken steps to reduce turnover slightly and they expect it to run in the 300% to 400% going forward.
The fund’s long-term results show that it has been able to overcome the drag of higher trading costs over time. However, it has experienced above-average volatility along the way and the fund tends to perform poorly in bear markets. In 2007 the fund was a bottom quartile performer and 2008 has so far seen mixed results. Although 2002 was also a weak year, it is hard to cast too many aspersions as Tyndall only took responsibility in September of that year. It is fair to say the managers have more than made up for these losses during rallying markets and the fund has delivered strong returns over the long term.
This fund is not best suited for who cannot stomach periods of underperformance and heightened volatility. For those that can, however, we believe this fund’s strategy can deliver strong outperformance over the long term.
