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Rising star Kartik Kumar backs Artemis Alpha Trust recovery

15 May 2018

New co-manager of out-of-favour ‘best ideas’ trust puts more ‘skin in the game’ as its shares stall 16% below net asset value.

Kartik Kumar, the new co-manager of out-of-favour ‘best ideas’ fund Artemis Alpha (ATS), has made his second big purchase of shares in the investment trust.

Kumar, who will formally replace Adrian Paterson and work alongside John Dodd when the manager retires at the end of year, spent £30,346 on 9,005 ATS shares last Friday at 337p each when - as now - they traded 16% below net asset value.

This takes his total holding to 20,000, having bought 10,000 ATS shares last month two weeks after his appointment and the conclusion of a strategic review by the board were announced.

While his ‘skin in the game’ will be welcomed by investors his stake  is dwarfed by Paterson, who has recently increased his holding to 2 million shares or 4.9% of the trust. Dodd holds even more with 7%.

Kumar, a rising star who cut his teeth working on the multi-asset Artemis Strategic Assets fund, was highlighted in 'the Young Guns' feature in the last edition of our e-zine.

ATS shares have rallied nearly 13% this year on hopes that the £139 million trust could be on the path to recovery after a long spell of underperformance caused by a large exposure to small energy stocks during the oil price slump.

The current discount, while wide, has narrowed from an average of nearly 19% in the past year.

The company faces a continuation vote in October which is why alongside the announcement of Paterson's retirement last month the board issued proposals to give investors an opportunity to sell some of their shares at a narrow discount every three years.

It is hoped this will help re-rate the stock.

In addition, more overseas stocks will be added to the portfolio while the allocation to unlisted companies, which have largely disappointed, will continue to be cut to 10%. The dividend will also be linked to inflation to give investors more certainty on the payouts.

Kumar has worked on the portfolio for some time and was responsible for the inclusion of Rocket Internet (RKET.DE), the German internet incubator, which is now a top 10 holding in the fund.

Simon Elliott of Winteflood Securities said he was ‘impressed’ on meeting Kumar whose ‘influence on the portfolio can already be seen in several key holdings’.

Nevertheless, like other analysts Elliott was concerned that while the board had probably done enough to win the vote in October, it had not produced a sufficiently distinct proposition to ensure ongoing investor support for the trust.

‘It is not altogether straight forward how to characterise what Artemis Alpha offers moving forward, and what role it plays in investors’ portfolios,’ he said.

Elliott said the wide discount is a reflection of the high number of unquoted stocks that the fund holds and although it plans to reduce this to 10% from 24%, this was ‘unlikely’ to happen before the October shareholder meeting.

‘We would have been tempted to hive off this section of the portfolio into a realisation share class,’ he said. ‘We believe this would have obviated the drag of the unquoted holdings on performance and should have allowed the fund to be re-rated.’

‘We suspect that it will take some time to establish the fund’s distinctive qualities in a crowded market, although maintaining its recent performance record would naturally help,’ said Elliott.

In the past 10 years ATS has generated a total shareholder return of 63%, well below the average 188% return of trusts in its UK All Companies sector.

Investment company news brought to you by Citywire Financial Publishers Limited.

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