The new managers of the Artemis UK Future Leaders investment trust have announced the portfolio transition is “effectively complete” and the time is right to re-introduce gearing.
Mark Niznik and William Tamworth were appointed managers of the trust, then called the Invesco Perpetual UK Smaller Companies Trust plc, on 10 March 2025. They have since rebalanced the portfolio so it more closely aligns with their investment strategy.
Speaking at the Artemis UK Future Leaders AGM earlier this month, they announced “the transition is done”, with a 75% overlap between the trust and the open-ended Artemis UK Smaller Companies Fund, which they also run.
When asked about the 25% that is different, Tamworth said about 10 percentage points is in companies they own in both vehicles, but in different weights, while the other 15 percentage points is in companies they own in one and not the other.
“There are two reasons for that second bucket,” he explained. “The first is that we have exposure to the same theme through different companies. For example, we own Wickes in the trust but have a similar exposure to UK RMI (repair, maintenance and improvement) in the fund through different companies. We don’t want to concentrate too much risk into one bucket.
“The second is that there will always be companies on the way in or out of any live portfolio; so I would say the transition is effectively complete.”
Increasing exposure to micro-caps
One caveat is that the managers plan to take advantage of the investment trust’s closed-ended structure by introducing some micro-cap exposure in the future.
However, Tamworth said it was important that they take their time with this process, as “these aren’t companies you can buy one day and sell the next”.
“We’ve got to get that right and although we expect to find opportunities, we’re not going to rush it,” he continued.
“That could take 12 months, or even longer. But the message from this side is that the transition is done.”
Portfolio characteristics
Despite the differences between the two vehicles, the underlying portfolios have similar financial characteristics. Unlike most of their small-cap peers, the managers take a value approach to investing in the sector, which helps to explain why the median company in the
Artemis UK Smaller Companies Fund is on a P/E of 11x with an 8% free cashflow yield, while earnings per share are growing at 12% a year.
“Now, if that were a single company, Mark and I would be saying that it’s at least 30% mis-priced,” Tamworth added.
“But for the trust, it’s better than that because it is currently trading at about a 15%discount to NAV. So you’re not buying it on an 8% free cashflow (FCF) yield, you’re effectively buying it on more than a 9% FCF yield, and you’re not buying it on a P/E of 12x, you’re effectively buying it on not much more than 10x. Factoring in the double discount means it’s even more mispriced.”
Niznik added: “Now we’ve finished the transition towards running money our own way, we think the time is right to add some modest gearing to the trust. In our opinion, UK small caps are materially mis-priced and gearing offers the opportunity to accelerate returns from here.”
Alignment of interests
To ensure a close alignment of interests with those of shareholders, Niznik and Tamworth have between them bought 680k shares in Artemis UK Future Leaders – just over 2% of the company.
But this not just about having skin in the game, as the managers believe it will be a sound long-term investment: Niznik said he disagrees with investors who claim the outlook for the UK small-cap market remains bleak.
“If you look back over the past 70 years, there have only been half a dozen or so times where you’ve lost money investing in small caps over five years. Those periods were all pretty grim: investing in small caps seemingly made no sense.
“But investing at those times, when valuations were at their lowest, was also when you made the most money over the subsequent five years.
“So when everyone is negative, saying the underperformance of small caps is permanent, it’s music to my ears.”
The Artemis UK Smaller Companies Fund, which Niznik and Tamworth have managed together for more than a decade, is a top-quartile performer in its IA (Investment Association) UK Smaller Companies sector over one, three, five and 10 years.
Performance to 31 May 2025
| 10 years (%) | 5 years (%) | 3 years (%) | 1 year (%) | |
| Artemis UK Smaller Companies I Acc GBP | 113.5 | 73.0 | 19.0 | 4.1 |
| Deutsche Numis Smaller Companies Exc Inv Com TR | 64.0 | 61.8 | 16.0 | 5.0 |
| IA UK Smaller Companies Average | 65.0 | 25.8 | -3.9 | -3.3 |
| Position in sector | 5/34 | 6/40 | 2/42 | 3/42 |
Source: Lipper Limited, mid to mid in sterling to the date shown. All figures show total returns with dividends reinvested. Past performance is not a guide to the future.
Discrete calendar year performance
| 2025 (to 31 May) (%) | 2024 (%) | 2023 (%) | 2022 (%) | 2021 (%) | 2020 (%) | |
| Artemis UK Smaller Companies I Acc GBP | 5.9 | 9.3 | 4.8 | -8.3 | 30.0 | -16.5 |
| Deutsche Numis Smaller Companies Exc Inv Com TR | 3.9 | 9.5 | 10.1 | -17.9 | 21.9 | -4.3 |
| UK Smaller Companies Average | 0.9 | 6.3 | 0.0 | -25.7 | 22.9 | 7.3 |
Source: Lipper Limited, mid to mid in sterling to the date shown. All figures show total returns with dividends reinvested. Past performance is not a guide to the future.
