ARTEMIS SMARTGARP GLOBAL EMERGING MARKETS EQUITY FUND uses data to stay ahead

Fund manager Artemis is a British success story. It was founded 27 years ago and oversees £26 billion in assets on behalf of investors.

Although it is a very ‘active’ investor, with fund managers responsible for the portfolios they build, almost 10 percent of its money is managed in a more methodical way.

It is run under a system called ‘SmartGARP’ – GARP stands for ‘growth at a reasonable price’.

The portfolios of the four funds managed in this way – UK Equity, European Equity, Global Equity and Global Emerging Markets Equity – are built based on the results of data that an extensive internal computer program processes on individual companies every day.

Everything from profits, cash flow, earnings and dividends to forecasts.

Simply put, the computer scores companies out of 100: the higher the score, the more investable a company is.

Two managers, Philip Wolstencroft and Raheel Altaf, ultimately decide the composition of the funds, but they are guided by what the computer tells them.

“It replicates the work of thousands of analysts,” says Altaf. “By investing in financial data, including niche and emerging data, we have a system that gives us an edge in the business insights it delivers.

“Our role is to make the best use of the information and build portfolios that are diversified across sectors and companies.”

He adds: ‘As the GARP label indicates, the goal is to have a portfolio of companies for which we have not overpaid and from which we can make money for our investors as their growth is reflected in increasingly higher stock prices.”

The strategy has proven most effective for global emerging markets equities, which represent £1 billion of the £2.5 billion of assets managed in this way.

Over the past five years, it has returned 47.5 percent, well above its peer group’s average of 20.3 percent.

Altaf says the computer analyzes data from 3,000 emerging market stocks, with the fund made up of companies from the ‘top’ 10 percent of companies that received the highest scores.

The fund currently has 80 positions. As a company’s score improves, more shares are typically purchased. Conversely, if the price starts to fall, the positions are slowly unwound.

“It’s a data-driven approach,” says Altaf, “which means it doesn’t fall victim to the swings in sentiment that are common in emerging markets. Fluctuations that often lead investors to sell their stocks at the first sign of trouble, such as trade tensions or geopolitical risks. Our fund continues to invest in the best companies.’

Altaf says the end product is a fund whose total investments are undervalued compared to its benchmark, the MSCI Emerging Markets Index – but where analyst forecasts are more positive. In other words, there is the potential for great share price growth.

The investments also have a stronger return on capital than the index and there is more money available to pay shareholders a decent dividend. The fund currently offers investors an attractive return of 4.9 percent.

“Many companies in China and South Korea have learned lessons,” says Altaf. ‘Instead of expanding, they are now focusing on strengthening their balance sheets. This results in better cash generation and strong dividends for shareholders.”

Altaf, who has been at the helm of Global Emerging Markets Equity since its launch in April 2015, added: “Every company in the fund is there thanks to SmartGARP’s sound fundamental analysis. It is a system that will outlast me, that much is certain.’

The fund has total ongoing charges of 0.86 percent.