Artemis Institutional UK Special Situations Fund Half-Yearly Report (unaudited) for the six months ended 30 June 2021 General information Objective and investment policy

Company profile Objective The investment objective of the Fund is to provide long- and term capital growth by exploiting special situations. The Artemis is a leading UK-based fund manager, offering a range investment Fund invests principally in UK equities and in companies of funds which invest in the UK, Europe, the US and around policy which are headquartered or have a significant part of their activities in the UK which are quoted on a regulated the world. market outside the UK. The securities of companies listed, quoted and/or traded in the UK but domiciled elsewhere As a dedicated, active investment house, we specialise in and the securities of companies traded on PLUS may be investment management for both retail and institutional included in the portfolio. Income within the portfolio is accumulated and reinvested. The Fund aims to provide investors across Europe. investors with a total return in excess of that of the FTSE ALL-Share Index. Independent and owner-managed, Artemis opened The Manager actively manages the portfolio in order to for business in 1997. Its aim was, and still is, exemplary achieve this objective. Exposure to large, medium and small companies varies over time, reflecting the Manager’s investment performance and client service. All Artemis’ views on where the greatest performance potential exists. staff share these two precepts – and the same flair and The Fund may also invest the property in transferable enthusiasm for fund management. securities, money market instruments, derivatives and forward transactions (for the purposes of efficient portfolio management), deposits and units in collective The firm now manages some £27.9 billion* across a range investment schemes. of funds, two investment trusts and both pooled and Benchmarks FTSE All-Share Index TR segregated institutional portfolios. A widely-used indicator of the performance of the UK stock market, in which the fund invests. It acts as a Our managers invest in their own and their colleagues’ funds. ‘target benchmark’ that the fund aims to outperform. This has been a basic tenet of the Artemis approach since Management of the fund is not restricted by this benchmark. the firm started. It means that interests of our fund managers are directly aligned with those of our investors.

* Source: Artemis as at 31 July 2021.

Fund status Artemis Institutional UK Special Situations Fund was constituted by a Trust Deed dated 23 December 2004 and is an authorised unit trust scheme, belonging to the non- UCITS retail category, as defined in the Collective Investment Schemes Sourcebook (‘COLL’) of the Financial Conduct Authority (‘FCA’).

Buying and selling Units may be bought and sold by contacting the manager by telephone, at the address on page 4 or via the website artemisfunds.com. Valuation of the fund takes place each business day at 12 noon on a forward pricing basis. Investors are reminded that past performance is not a guarantee of performance in the future and that the price of units and the revenue from them can fall as well as rise.

3 Prospectus Report of the manager Copies of the most recent Prospectus are available free of We hereby approve the Half-Yearly Report of the Artemis charge from the manager at the address below. Institutional UK Special Situations Fund for the six months ended 30 June 2021 on behalf of Artemis Fund Managers Limited in accordance with the requirements of COLL as Manager and Alternative Investment Fund Manager issued and amended by the FCA. (‘AIFM’) Artemis Fund Managers Limited * Cassini House M J Murray L E Cairney 57 St James’s Street Director Director London SW1A 1LD Artemis Fund Managers Limited London Dealing information: 25 August 2021 Artemis Fund Managers Limited PO Box 9688 Chelmsford CM99 2AE Telephone: 0800 092 2051 Website: artemisfunds.com

Investment adviser Artemis Investment Management LLP * Cassini House 57 St James’s Street London SW1A 1LD

Trustee and Depositary J.P. Morgan Europe Limited † 25 Bank Street Canary Wharf London E14 5JP

Registrar SS&C Financial Services International Limited * SS&C House St Nicholas Lane Basildon Essex SS15 5FS

Auditor Ernst & Young LLP Atria One 144 Morrison Street Edinburgh EH3 8EX

* Authorised and regulated by the FCA, 12 Endeavour Square, London E20 1JN. † Authorised by the Prudential Regulation Authority (‘PRA’), 20 Moorgate, London EC2R 6DA and regulated by the PRA and the FCA.

4 Investment review

̥ Amid economic and Covid uncertainty, our companies And here the news across the portfolio has been uniformly continued to deliver. positive. Having reduced (or removed) guidance on future ̥ The fund returned 15.3%* versus 11.1%* for the FTSE All- earnings during the early days of the pandemic, most Share index. companies have spent the past 12 months or so rebuilding ̥ The ‘easy’ part of the year is probably behind us. these forecasts. Indeed the speed with which earnings have recovered, often supported by reduced costs and by new ways Performance – As economies and profits recover from the of delivery, have surprised many. But it has not all been plain pandemic… sailing (or, in our case, a smooth flight)... In writing the outlook in the fund’s annual report six months ago, we slightly hedged our bets (a typical fund-manager tactic…). Review – Waiting for our airlines to take off… While we noted the progress being made in rolling out vaccines While speaking to a friend over a drink at Christmas (from and in the economic recovery, we also introduced a note of the requisite two metres) I was asked which shares had caution. In a sense, we were right on both counts. The pandemic performed best for us in 2020. “Airlines”, I replied. My friend has continued and, just as we are about to return (at least in the looked at me in surprise and asked how this could be given eyes of the politicians) to ‘normality’, the Delta variant caused no-one was flying. As we know, share prices tend to discount an upsurge in cases. Inevitably, it is now being suggested that the future and financial markets operate one step ahead we might be exiting lockdown too quickly. This clearly depends of the real world. But were last year’s gains misplaced? on who you ask. With now two-thirds of the UK population Although only time will tell, we still think the basic ‘double-jabbed’ one would like to think the most vulnerable are investment premise is logical. An industry that was once now somewhat protected. And this appears to be supported by plagued by multiple low-cost entrants, state-supported flag the lower level of hospitalisations and deaths. We are, however, carriers and which has a highly operationally geared business dealing with the unknown, and as we write this report the model (airlines have high fixed costs) may not seem to be the prevalence of the virus among the young is increasing quickly. stuff of investment dreams. But with the demise of marginal The other note of caution we expressed was how much of the airlines such as Monarch and Flybe, and with the collapse of return to normality had already been priced by the stockmarket holiday company Thomas Cook, we had started to witness – and what a swift return to normality might mean for both a more rational environment in which the better players had inflation and interest rates. All of these issues have been front an opportunity to win market share. We took the view that and centre of investors’ minds over the first half of the year. the pressures exerted by the pandemic would ultimately Given the success of the stimulus provided by governments clear out the rest of the airline industry’s weaker players and and central banks, there were concerns that interest rates restrict some underfunded larger players from expanding. So would have to rise sooner than previously thought – so yields we bought Jet2 and Ryanair, both of whom we believed would on government bonds rose markedly (yield is the return on be able to exploit this situation and take significant market a bond relative to its price so rise when bonds lose some share. Yet while both holdings performed well last year, they of their appeal). We old folks, of course, still have to rub our have been the largest drags on our performance this year. eyes when we look at bond yields; these remain at incredibly Does this change our view? low levels by historic standards. But that yields briefly edged As investors, we believe in the quote often attributed to Keynes higher demonstrated the degree of concern over an economic “When my information changes, I alter my conclusions”. To this overheating. point, however, our conclusion hasn’t changed. Both airlines So given all the concerns outlined above it may be a bit of a remain well-financed (partly with our help). They therefore surprise that our benchmark index, the FTSE All-Share, actually have the ability to respond as demand recovers and to invest rose by 11.1%. The fund, meanwhile, did a little better, producing in more fuel-efficient aircraft. The competition, in contrast, a return of 15.3%. has amassed more debt and is retrenching. But the largest ‘unknown’ continues to be the virus and what it means for travel These healthy returns highlight the drawbacks of spending restrictions this year and, indeed, for travel over the longer term. too much time focused on the macroeconomic environment: We had hoped that we would have more clarity on this given commentators can instil all manner of fear by making the level of vaccinations, but the Delta variant has muddied the predictions that, more often than not, turn out to be completely waters. Currently we continue to hold both companies in the wrong. As always, the single most important thing is what our belief that the long-term prize we envisaged last year still exists. companies are saying and what they have delivered. We once But we are mindful of the fact that we are faced with just as again commend the employees and management teams of our much uncertainty on the path of the virus as last year. companies for the way they have managed their businesses through the pandemic. The other main detractor during the period was Melrose. This is interesting as it has recently sold the Nortek business – which it

Past performance is not a guide to the future. * Source: Lipper Limited/Artemis, Accumulation units, in sterling to 30 June 2021. All figures show total returns based on close of business prices, with dividends and/or income reinvested, gross of charges. Performance does not take account of any costs incurred when investors buy or sell the fund. Returns may vary as a result of currency fluctuations if the investor’s currency is different to that of the class. Benchmark is FTSE All-Share Index TR.

5 acquired and improved – for more than double what it paid. This In general, we still see decent value in our holdings but we disposal significantly improves the strength of its balance sheet. are being challenged by the valuations in a few areas. We Melrose is also seeing a decent rebound in its automotive have already mentioned the gaming companies. The other business, which has significant potential to grow as production challenge is posed by Ashtead. The shares have performed very of electric vehicles increases: it is the number-one supplier well for the fund over the last few years and deservedly so – it of drivelines. It also has some strong technology in hydrogen demonstrated the strength of its offering during a very volatile storage, another ‘green’ business. Although the aerospace year. However, we feel much of this is now reflected in the price. business undoubtedly remains subdued, there have been more We have significantly reduced the holding. positive comments from the two main aircraft suppliers. The Finally, takeover activity has been a feature of the UK market management team currently at Melrose has delivered over a this year and we received a bid approach for Sanne, the fund number of years for the fund, so we have used weakness to add administrator. In many ways this isn’t a complete surprise given to the position. activity in the sector and the high level of recurring earnings. We Our list of winners was as eclectic as ever. The sharp rise in await the outcome. We are slightly surprised we haven’t actually earnings enjoyed by online gaming companies are, we suppose, received more bids for our holdings over the period. Although not a complete surprise as punters trapped at home enjoyed a we don’t invest in companies in the hope they are acquired, we flutter. It is unlikely that the stellar growth rates they have seen thought it would have been more of a feature given the level of over the past 18 months can continue and we have taken profits activity in the UK market and the modest valuation levels of the here, selling out of Flutter and reducing 888. holdings in the portfolio.

The world’s appetite for luxury watches continues unabated and continues to grow. It’s interesting that Our approach to ESG… the per consumption of Rolex watches is, for now, higher We believe that the rehabilitation of any company’s financial in the UK than in the US. We believe this offers a significant performance runs in parallel with the improvement in its growth opportunity for Watches of Switzerland Group as it environmental, social and governance (ESG) factors. Given expands in the US. Its management team aim to exploit this by we invest predominately in turnaround or special situations delivering a superior retailing experience than currently exists in (where historic ESG practices may not have been a focus) the States. the key is the improved momentum of all these factors. The biggest contributor to performance was , We engage with company management teams and expect the provider of ‘mobility solutions’. The merger of Redde them to have a roadmap towards improvement. Within this and Northgate is going well; significant synergies are being framework we clearly assess the long-term implications of extracted. The van-rental business continues to perform, helped a number of factors on the long-term investment risk of a by the demand for those pesky white vans needed to make company’s business model. We utilise a number of external all our home deliveries. The Redde accident-support business data providers as a second line of monitoring on this has been hit due to its correlation to traffic volumes, which fell improvement and to highlight any issues we need to discuss during lockdown(s). But traffic volumes are now rising again with companies directly. and we believe the bounce back is only a question of time. And We have always had a high level of engagement with our the company continues to evolve its model of offering different company management teams – but the volatility of last products and is expanding its fleet to include electric vans. We year has offered us even greater contact. We have been still see value in the shares. impressed with the way our companies have conducted Chart 1: Companies listed in the UK still appear cheaper themselves during the pandemic, supporting their customers (relative to their earnings, dividends and book value) than and employees and recognising the role they play in society. those in other parts of the world. We have also seen evidence of the longer-term focus 0 on environmental change. And where conditions have improved they have been quick to recognise the longer- -5 term implications of the pandemic, with companies such as and Watches of Switzerland setting up educational -10 MSCI UK vs. MSCI World foundations. P B V

& -15 Y

D We have not sold any positions during the period due to Median E , -20 concerns on ESG issues. We have, however, continued to o n P / reduce our exposure to industries that have clear headwinds

i u m -25 from the transition to new energy and therefore where the

p r e m investment risk has increased.

% -30 Within our portfolio, there are businesses at different stages e r a g v -35 of delivery of their ESG targets. We own ‘green’ champions A like Oxford Instruments and Spectris, whose products -40 directly support the development of electric vehicles,

-45 renewable energy and faster drug discovery. But we also own 1989 1993 1997 2001 2005 2009 2013 2017 2021 Source: MSCI, IBES, Morgan Stanley Research. 6 companies that might be viewed as poor ESG candidates. Chart 2: Input costs are going up. We want to be sure our At the same time, however, we see a company like Melrose, companies can pass that on… which supplies the automotive and aerospace markets, as Input and output price inflation % year-on-year a classic ‘improver’. Having taken over the underperforming 12.0% GKN business, it has invested in electric-vehicle drive systems and hydrogen-storage technology all the while 10.0% Input PPI becoming more efficient. These things take time but for us 8.0% the improving momentum in its social output is as much a measure of the overall success of its turnaround as financial 6.0% metrics. 4.0%

Outlook – The much-needed return to ‘normality’… 2.0% Output PPI

The ‘easy’ part of the year is now behind us. We make this 0.0% statement not with an eye on seasonal trends or with our -2.0% hands swirling around a recently acquired crystal ball - but based on the following observations. The bounce in -4.0% stockmarkets from the lows of last year has been supported by record amounts of stimulus and the help of corporate -6.0% earnings expectations that were significantly reduced in the -8.0% early days of the pandemic. Jun 12 Sep 13 Dec 14 Mar 16 Jun 17 Sep 18 Dec 19 Mar 21

Corporates in general have spent the last 12 months Source: ONS rebuilding their forecasts and therefore provided excellent This isn’t a particularly negative call. We are only making earnings momentum. It is unlikely that this will continue at the observation that we have had a lot of good news on the the same rate. And as for stimulus? We have likely seen the economic recovery over the year to date and this is unlikely best of it. So one of the concerns that has started to worry to continue. At the same time, some valuations are looking investors is the prospect of reduced stimulus and even the more stretched. But we also expect the current rate of thought of interest rates rising sooner than expected (of vaccinations to continue and this in itself should speed up a course ‘sooner’ is probably still some time away…). much-needed return to normality.

There are noises and musings from a few central bankers We also note that we have a decent number of investment that maybe the inflationary forces in the system are more ideas and that we are still very happy adding to a number of than transitory. We noted earlier that given the distortions our current holdings. We believe the UK stockmarket remains inherent in making year-on-year comparisons given the attractively valued in an international context and this is extremity of the situation in Q2 2020, it would take time being recognised by other companies and by private equity to see what the true figures will be. This will become more in the form of takeover bids. We expect the high level of M&A evident towards the year end. But we have heard from many activity to continue for the balance of the year. companies about the increase in raw material prices, labour costs and, of course, the oil price has risen. Derek Stuart and Andy Gray Fund managers Of course there are many factors at play here. The economic stimulus has been extreme and driven significant demand for a number of products. But at a time when the world is also suffering from less than fluid supply chains, under- production of certain products and, in the UK, increased complexity in cross-border trade. We are monitoring the situation and getting feedback from our holdings. Chart 2 highlights how much input costs have risen (albeit from a low comparator point) and we therefore need to make sure our companies can pass this on in terms of pricing. The good news is everyone recognises the problem.

7 Investment information Ten largest purchases and sales for the six months ended 30 June 2021

Cost Proceeds Purchases £’000 Sales £’000 702 BP 2,681 611 Watches of Switzerland Group 2,387 IG Group Holdings 580 2,377 Pearson 525 2,260 AstraZeneca 453 Group 2,252 British American Tobacco 437 AstraZeneca 2,069 387 1,988 370 1,830 Group 333 Tesco 1,782 Restaurant Group 319 Prudential 1,686

Portfolio statement as at 30 June 2021 Valuation % of net Investment Holding £’000 assets Equities 96.57% (97.71%) Basic Materials 7.11% (4.87%) Anglo American 26,674 766 3.60 34,713 292 1.37 Hill & Smith Holdings 18,314 273 1.28 36,592 183 0.86 1,514 7.11 Consumer Discretionary 20.33% (20.12%) 69,610 266 1.25 25,313 439 2.06 J D Wetherspoon 49,410 578 2.71 Jet2 # 56,044 661 3.11 Pearson 52,771 437 2.05 Persimmon 13,350 393 1.85 Restaurant Group 252,747 323 1.52 Ryanair Holdings 26,417 354 1.66 Watches of Switzerland Group 71,816 592 2.78 WH Smith 18,101 285 1.34 4,328 20.33 Consumer Staples 12.31% (12.44%) Associated British Foods 29,281 649 3.05 British American Tobacco 13,804 386 1.81 34,442 321 1.51 Imperial Brands 42,098 656 3.08 Tesco 273,138 608 2.86 2,620 12.31 Energy 1.74% (3.69%) BP 118,294 371 1.74 371 1.74 Financials 23.65% (23.00%) 3i Group 75,201 884 4.15 AdvancedAdvT 193,892 233 1.09 Barclays 444,071 754 3.54 Conduit Holdings 46,210 240 1.13 IG Group Holdings 70,426 604 2.84

8 Valuation % of net Investment Holding £’000 assets Intermediate Capital Group 24,096 519 2.44 M&G 161,127 367 1.73 Prudential 26,182 364 1.71 Quilter 330,179 492 2.31 Sanne Group 46,783 391 1.83 Sherborne Investors Guernsey C shares 316,052 188 0.88 5,036 23.65 Healthcare 6.01% (3.43%) AstraZeneca 11,951 1,039 4.88 ConvaTec Group 100,119 241 1.13 1,280 6.01 Industrials 21.20% (25.37%) Ashtead Group 4,974 267 1.25 Babcock International Group 88,096 254 1.19 Balfour Beatty 89,301 274 1.29 Dyson Group ^ 654,586 - - Johnson Service Group # 382,491 653 3.07 257,228 392 1.84 Oxford Instruments 19,343 451 2.12 QinetiQ Group 168,577 574 2.70 Redde Northgate 164,040 658 3.09 41,181 653 3.06 Spectris 10,408 339 1.59 4,515 21.20 Technology 2.78% (3.19%) 22,832 591 2.78 Intechnology ^ 4,321,572 - - 591 2.78 Telecommunications 1.44% (1.60%) BT Group 159,467 308 1.44 308 1.44 Equities total 20,563 96.57 Investment assets 20,563 96.57 Net other assets 730 3.43 Net assets attributable to unitholders 21,293 100.00 The comparative percentage figures in brackets are as at 31 December 2020. # Security listed on the Alternative Investment Market (‘AIM’). ^ Unlisted, suspended or delisted security.

9 Financial statements

Statement of total return for the six months ended 30 June 2021

30 June 2021 30 June 2020 £’000 £’000 £’000 £’000 Income Net capital gains/(losses) 3,624 (19,829) Revenue 329 1,015 Expenses (116) (323) Net revenue before taxation 213 692 Taxation - - Net revenue after taxation 213 692 Total return before distributions 3,837 (19,137) Distributions (39) 5 Change in unitholders’ funds from investment activities 3,798 (19,132)

Statement of change in net assets attributable to unitholders for the six months ended 30 June 2021

30 June 2021 30 June 2020 £’000 £’000 £’000 £’000 Opening net assets 69,243 101,792 Amounts receivable on issue of units 1,810 3,740 Amounts payable on cancellation of units (53,614) (5,781) (51,804) (2,041) Dilution adjustment 56 11 Change in unitholders’ funds from investment activities 3,798 (19,132) Closing net assets 21,293 80,630

Balance sheet as at 30 June 2021

30 June 2021 31 December 2020 £’000 £’000 Assets Fixed assets Investments 20,563 67,658 Current assets Debtors 326 515 Cash and cash equivalents 440 1,127 Total current assets 766 1,642 Total assets 21,329 69,300 Liabilities Creditors Other creditors 36 57 Total creditors 36 57 Total liabilities 36 57 Unitholders’ funds 21,293 69,243

10 1. Basis of preparation The interim financial statements have been prepared in accordance with the Statement of Recommended Practice for Authorised Funds issued by the Investment Management Association in May 2014.

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2020 as set out therein.

2. Post balance sheet events There were no significant post balance sheet events subsequent to the period end.

11 Fund sizes & net asset values Fund performance

Net asset Net asset Since 5 3 1 6 Date value of value per Units Performance launch * years years year months fund (£) unit (p) in issue Artemis Institutional 31 December 2018 90,180,578 UK Special Situations Fund Distribution 122.14 6,930 (gross of fees) 1,121.0 54.1 23.4 43.1 15.3 Accumulation 135.17 66,711,456 Artemis Institutional UK Special 31 December 2019 101,791,986 Situations Fund (net of fees) 903.3 48.5 20.6 42.0 14.9 Distribution * - - FTSE All-Share Index Accumulation 173.96 58,514,987 TR (gross of fees) 164.9 36.9 6.3 21.5 11.1 31 December 2020 69,242,518 Past performance is not a guide to the future. Accumulation 172.52 40,136,273 * Source: Artemis/Factset. Data from 16 March 2005, in sterling to 30 June 2021. All figures show total returns based on close of business 30 June 2021 21,293,007 prices, with dividend and/or income reinvested. Performance does not take account of any costs incurred when investors buy or sell the fund. Accumulation 197.26 10,794,523 Returns may vary as a result of currency fluctuations if the investor’s currency is different to that of the class. * Closed 9 December 2019.

Ongoing charges

Class 30 June 2021

Accumulation 0.79%

Ongoing charges shows the annual operating expenses of each unit class as a percentage of the average net assets of that class for the preceding 12 months.

12 Artemis Fund Managers Limited Cassini House, 57 St James’s Street, London SW1A 1LD 6th floor, Exchange Plaza, 50 Lothian Road, Edinburgh EH3 9BY

Sales Support 0800 092 2090 Facsimile 020 7399 6498

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Website www.artemisfunds.com