ARTEMIS INCOME: Elite £4.8bn fund aims for 10% dividend rise (2024)

Investment fund Artemis Income benefits from three pairs of hands on the tiller – Adrian Frost, Nick Shenton and Andy Marsh.

Between them, they have run the fund for 31 years, but their considerable experience didn't stop the £4.8billion UK equity income fund from being caught up in last year's round of dividend cuts across UK plc.

They were forced to trim its dividend payment for 2020 – paid bi-annually – by 26 per cent although the cut was less than the 44 per cent reduction experienced by the UK stock market as a whole.

Yet the managers remain in buoyant mood. The first dividend payment for 2021, to be paid at the end of next month, is 9 per cent higher than the equivalent payment last year and Shenton is confident the fund can generate 10 per cent dividend growth for the year as a whole.

'As fund managers of an equity income fund, we have faced headwinds for the past five years,' he says. 'But with Brexit out of the way, and the economy emerging from lockdown, we are now beginning to feel the benefit of a tailwind.'

Over the past year, the fund has generated an overall return for investors of 28 per cent. The fund is invested in 50 stocks, most of which are listed in the UK.

The key to investment success, says Shenton, is identifying companies capable of delivering sufficient cash to both pay shareholders a dividend and meet interest on any outstanding debt.

'It's all about sustainable cash flow,' he adds. 'Often that results from companies employing new technology to create value.'

The team generally hold shares for six years or more, although Shenton says the pandemic provided the opportunity for the three of them to 'ease out some of the looser bricks' while investing in a few companies on their watch list.

This resulted in positions in HSBC, Vivendi, Shell and Experian being disposed of.

New holdings were taken in Burberry, Next and Pearson, while the managers used the fund's ability to invest in a limited number of overseas companies (capped at 20 per cent) to buy shares in US tech giant Cisco and Japanese games company Nintendo.

Although Adrian Frost is the senior manager – having been involved with the fund since 2002 – there is no hierarchy, with all three able to buy stocks they like for the fund.

'We all have the same investment philosophy,' says Andy Marsh.

'We're stock pickers at heart which means we're constantly searching for outstanding businesses that we can invest in.

'We challenge each other all the time and share responsibility for every decision we take.'

The only framework they adhere to is a portfolio that is diversified across industries (with no more than 15 per cent in any one sector), with individual holdings rarely exceeding five per cent of the fund's value (3i Group is the only current holding above five per cent).

The fund does not invest in unquoted stocks.

Independent investment fund ratings company FundCalibre categorises Artemis Income as an 'elite' fund, stating it has been a 'stalwart' of the UK equity income sector for two decades and possesses 'an excellent team, a strong process and a long-term track record'.

Since launch in June 2000, it has comfortably outperformed the FTSE All-Share Index, delivering an average annual return of 8.8 per cent compared to the index's 4.7 per cent return.

The annual dividend is equivalent to 3.27 per cent, the ongoing annual charges are 0.8 per cent, and the stock market identification code is: B2PLJH1.