Tideway’s current equity positioning is designed to avoid what we believe are the biggest risks in today’s market: High valuations and concentration.
Historically, forward-looking equity returns have tended to be weak when markets are either richly valued or heavily concentrated. Today, both conditions are present (a concerning combination) which we believe should give investors pause for thought, especially at a time when US exceptionalism is increasingly being called into question.
Current Equity Positioning: Avoiding the Riskiest Areas of the Market
Underweight US exposure
Approximately 30% underweight relative to the MSCI ACWI, reflecting caution around valuation and concentration risks. The MSCI ACWI currently c.68.6% in the US versus its average for the 21st century of 51%.
Underweight US dollar
As a result, the Tideway Equity portfolio is also underweight the US dollar, which has depreciated by around 8% year to date for GBP-based investors.
Underweight US Mega Cap Tech
Holding just 2 of the 8 ‘Mag 8’ stocks, representing around 1.5% of the portfolio versus approximately 23% in the MSCI ACWI.
Stronger valuation discipline
Equity holdings trade at roughly a 15% discount on a forward P/E basis and around a 25% discount on a PEG basis (adjusted for earnings growth).
Higher income generation
Portfolio dividend yield is approximately 3.5%, compared to 2.2% for the MSCI ACWI.
Fund in Focus: Artemis Global Income
A strong example of Tideway’s contrarian equity positioning is Artemis Global Income, a fund that continues to look beyond the ‘usual suspects’ on which many passive and ‘active’ managers have relied for returns.
We’ve highlighted this strategy on several occasions over the past 18 months (see here and here), and we’re pleased to report that the strategy has not disappointed since then, ranking first in the IA Global Equity Income peer group so far in 2025, following the same top ranking for the full calendar year in 2024.
Tideway have now held the fund for close to nine years, since the inception of Tideway’s model portfolios.
Performance since the inception of Tideway’s model portfolios in September 2016
- Achieved with minimal exposure to dominant US tech names – initially the FAANGs, and more recently the so-called ‘Magnificent 7/8’.
- Strong outperformance relative to the IA Global Equity Income peer group, many of whom were similarly constrained by the low dividend yields of the largest tech stocks.
- True active management means being different from benchmarks and passives – the potential for strong outperformance naturally comes with the risk of periods of underperformance which we have seen from time to time over the last nine years. It’s the price of running a genuinely active portfolio.
One could argue that Tideway ‘timed’ their investment relatively poorly as relative performance of the fund has been even stronger since its inception in July 2010; it has returned +485% versus an MSCI ACWI return of +371% over the same period.
Process and Philosophy
A brief reminder of the strategy’s process and philosophy.
The portfolio is structured around three key investment categories, designed to balance risk, reliable income, and the potential for capital growth. These categories (Core Income, Dividend Growth, and Risk & Special Situations) give the fund flexibility to navigate different market conditions while keeping a strong focus on income.
- Core Income includes companies in mature, stable sectors
- Dividend Growth focuses on companies with moderate yields (typically around 3%) that have a strong record of growing their dividends over time. This is particularly important with increasing inflation uncertainty
- Risk & Special Situations is the highest risk/return part of the portfolio with yields often between 7/8%, often including names from emerging markets, cyclical sectors, or lesser-known mid-cap companies
Positioning
‘Regime Change’ and looking beyond ‘the usual suspects’.
‘A central pillar of the fund’s recent strategy is its acknowledgment of a global regime shift that has been unfolding since the end of the COVID-19 pandemic.’
The Artemis Global Income Thesis summarised succinctly on the slide below, ‘Regime change: from efficiency to resilience’, has been presented by Artemis for over three years and illustrates how they have been ahead of the market in their thinking and consequently a return perspective as the fund repositioned to reflect these global shifts.
Two of the main themes at the moment are European banks, supported by rising interest rates and regulatory changes as well as Defence stocks such as Rheinmetall, which have benefited amid higher government spending and geopolitical tension.
Defence
‘Structural underinvestment in NATO ex-US defence for 3+ decades.’
- Defence holdings have been a key performance driver year-to-date, but they are not the sole contributors to the fund’s strong returns.
- As a result of the strong performance, the fund’s allocation to defence has increased with Rheinmetall now its largest single name position.
- While valuations have risen, the manager believes long-term structural drivers remain intact, supporting ongoing earnings and dividend growth.
- The manager has, however, actively taken profits at various points this year, locking in gains as opportunities arise.
Not every investment will deliver like this one, but it reflects the value of correctly identifying long term themes before they happen. By the time this much price action has taken place it is often too late.
Financials
Financials, particularly European banks, have been another standout contributor; as the fund’s largest absolute sector position, this has helped drive performance.
While valuations have risen over the last couple of years, the manager remains active in recycling capital, trimming top performers as they reach fair value and reinvesting into other European banks whose share prices have yet to reflect their fundamentals.
The team expects the sector to continue benefiting from the broader regime shift playing out across the global economy.
Summary Thoughts
It’s just as important to review a fund after strong outperformance as it is when it underperforms.
Even though the fund has already achieved great returns in defence and financials, we remain confident in the performance outlook for Artemis Global Income.
The manager has been actively taking profits from top-performing names and reallocating into more attractively valued opportunities—even within the same theme.
This active, valuation-focused approach contrasts with passive strategies, where winners automatically grow into larger positions, increasing both valuation and concentration risks—key concerns for Tideway in today’s market.
Even after a strong run, the fund remains significantly cheaper than price-agnostic global benchmarks, trading at a 50% discount to the MSCI ACWI on a P/E basis, while offering twice the dividend yield and faster dividend growth.
Although defence now makes up a larger share of the portfolio, concentration risk has been managed through selective trimming of the top-performing holdings.
