1) MONTHLY
Artisan High Income Fund
Commentary
Investor Class: ARTFX
|
Advisor Class: APDFX
As of 31 December 2016
Portfolio Details
Commentary
Non-investment grade markets capped off a strong year with solid gains in December as high
yield bond spreads continued to compress. High yield bonds were up 1.97% (BAML Index), while
leveraged loans (JP Morgan Leveraged Loan Index) gained 1.15%. Following the US election, risk
assets further rallied on growing expectations for action on tax reform and deregulation. Market
optimism was reflected in the largest inflows into the high yield asset class since mid-July. Our
portfolio trailed the BAML Index in December, but modestly outperformed in Q4.
High yield bond yields and spreads compressed approximately 40bps in December. Since the
mid-February peak in spreads, high yield bond yields are nearly 4 percentage points lower and
spreads are roughly 450bps tighter. There was no bigger driver this year for credit markets than
improving fundamentals in the commodity sectors. In December, the energy sector received an
additional boost from OPEC’s agreement to curtail production.
December saw a continuation in performance trends by rating and sector. Lower-rated credits
outperformed, and the energy sector led by a wide margin, adding to its strong year-to-date
performance. CCCs returned 3.75%, whereas the highest-rated non-investment grade credits
(BBs) were up 1.43%. For the year, CCCs were up 36%, compared to about 17% for Bs and 13%
for BBs.
Default activity was muted during the month as only four companies defaulted totaling $1.6
billion in bonds and loans. Defaults have trended lower over the course of 2016 as commodity
sectors continued healing. Indeed, more than half of default volume for the year occurred in Q1.
For the year, $60 billion in high yield bonds and loans defaulted, which was 57% higher than
2015’s $38 billion. However, excluding the commodity sectors, default rates were extraordinarily
benign and below historical averages.
Non-investment grade credit is clearly richer than it was coming into 2016 given the robust
returns and degree of spread tightening that occurred. However, we believe the risk/reward
opportunity in the asset class is still superior to most other areas of fixed income where yields
remain quite low and possess greater interest rate risk. In that type of environment, we believe
the idiosyncratic and focused nature of our portfolio is well positioned.
Net Asset Value (NAV)
Inception
30-Day SEC Yield
ARTFX
APDFX
$9.86
$9.86
19 Mar 2014 19 Mar 2014
5.41%
5.62%
Expense Ratios
1.03%
1.09%
Annual Report 30 Sep 2016
Prospectus 30 Sep 2015
0.84%
0.93%
Portfolio Statistics
Fund
Number of Holdings
116
76
Number of Issuers
Source: Artisan Partners.
Top 10 Holdings (% of total portfolio)
6.0
5.4
Williams Cos Inc
4.0
Charter Communications Inc
3.6
Kronos Inc
3.3
Opal Acquisition Inc
3.2
HUB Holdings LLC
3.2
Endeavor Energy Resources LP
3.2
York Risk Services Holding Corp
3.1
Altice SA
3.1
TOTAL
38.1%
Source: Artisan Partners/Bloomberg. For the purpose of determining the Portfolio’s
holdings, securities of the same issuer are aggregated to determine the weight in the
Portfolio.
VEREIT Inc
USI Inc
Portfolio Composition (% of total portfolio)
Corporate Bonds
74.9
Bank Loans
20.0
Equities
0.6
Cash and Equivalents
TOTAL
4.5
100.0%
Source: Artisan Partners/Bloomberg. Negative cash weightings and portfolio
composition greater than 100% may be due to unsettled transactions or investment
in derivative instruments.
Average Annual Total Returns
Investment Results (%)
As of 31 December 2016
MTD1
QTD1
Investor Class: ARTFX
1.45
1.47
1.97
Advisor Class: APDFX
BofA Merrill Lynch US High Yield Master
II Index
YTD1
1 Yr
3 Yr
5 Yr
10 Yr
Inception
1.95
2.00
14.52
14.72
14.52
14.72
—
—
—
—
—
—
6.10
6.26
1.88
17.49
17.49
4.08
Source: Artisan Partners/BofA Merrill Lynch. 1Returns for periods less than one year are not annualized.
Past performance does not guarantee and is not a reliable indicator of future results. Investment returns and principal values will fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Current performance may be lower or higher than that shown. Call 888.454.1770 for current to most recent month-end performance. The performance information shown does not reflect the
deduction of a 2% redemption fee on shares held by an investor for 90 days or less and, if reflected, the fee would reduce the performance quoted. Performance may reflect agreements to limit a Fund’s expenses,
which would reduce performance if not in effect. Unlike the Index, the High Income Fund may hold loans and other security types. At times, this causes material differences in relative performance.
2) Artisan High Income Fund
Investor Class: ARTFX
Credit Quality (%)
|
Advisor Class: APDFX
Team Leadership
BBB
12.8
BB
19.0
B
36.8
CCC
29.4
CC
0.6
Unrated
TOTAL
1.4
100.0%
Source: S&P/Moody's.
Portfolio Manager
Bryan C. Krug, CFA
Years of Investment Experience
16
Maturity Distribution (%)
< 1 Year
0.5
1 - <3 years
5.0
3 - <5 years
24.7
5 - <7 years
32.7
7 - <10 years
36.1
10+ years
TOTAL
1.0
100.0%
Source: Artisan Partners/Bloomberg. Percentages shown are of total fixed income
securities in the portfolio.
Portfolio Construction
The team generally determines the amount of assets invested
in each issuer based on conviction, valuation and availability
of supply. Based on the team’s analysis it divides the portfolio
into three parts. Core investments are generally positions with
stable to improving credit profiles and lower loan to value
ratios. Spread investments are those where the team has an
out-of-consensus view about a company’s credit
improvement potential. Opportunistic investments are driven
by market dislocations that have created a unique investment
opportunity. Allocations to each group will vary over time
based on market conditions.
Carefully consider the Fund’s investment objective, risks and charges and expenses. This and other important information is
contained in the Fund's prospectus and summary prospectus, which can be obtained by calling 888.454.1770. Read carefully
before investing.
Fixed income securities carry interest rate risk and credit risk for both the issuer and counterparty and investors may lose principal value.
In general, when interest rates rise, fixed income values fall. High income securities (junk bonds) are speculative, experience greater price
volatility and have a higher degree of credit and liquidity risk than bonds with a higher credit rating. The portfolio typically invests a
significant portion of its assets in lower-rated high income securities (e.g., CCC). Loans carry risks including insolvency of the borrower,
lending bank or other intermediary. Loans may be secured, unsecured, or not fully collateralized, trade infrequently, experience delayed
settlement, and be subject to resale restrictions. Private placement and restricted securities may not be easily sold due to resale restrictions
and are more difficult to value. The use of derivatives in a portfolio may create investment leverage and increase the likelihood of
volatility and risk of loss in excess of the amount invested. International investments involve special risks, including currency fluctuation,
lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are
greater in emerging markets.
BofA Merrill Lynch US High Yield Master II Index measures the performance of below investment grade $US-denominated corporate bonds publicly
issued in the US market. J.P. Morgan Leveraged Loan Index is designed to mirror the investable universe of the USD-denominated institutional
leveraged loan market. The index(es) are unmanaged; include net reinvested dividends; do not reflect fees or expenses; and are not available for
direct investment.
For the purpose of determining the Fund’s holdings, securities of the same issuer are aggregated to determine the weight in the Fund. The
discussion of portfolio holdings does not constitute a recommendation of any individual security. Securities named in the Commentary, but not listed
as a Top Ten Holding or not listed here are not held in the Fund as of the date of this report. The portfolio managers’ views and portfolio holdings
are subject to change and the Fund disclaims any obligation to advise investors of such changes.
All information in this report includes all classes of shares, except performance and expense ratio information and as otherwise indicated, and is as
of the date shown in the upper right hand corner unless otherwise indicated. Artisan Partners may exclude outliers when calculating portfolio
statistics. If certain information is unavailable for a particular security Artisan Partners may use data from a related security to calculate portfolio
characteristics. Portfolio statistics include accrued interest unless otherwise stated and may vary from the official books and records of the Fund.
Totals may not sum due to rounding.
Source Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BofAML”), used with permission. BofAML permits use of the BofAML indices and
related data on an "as is" basis, makes no warranties regarding same, does not guarantee the suitability, quality, accuracy, timeliness, and/or
completeness of the BofAML indices or any data included in, related to, or derived therefrom, assumes no liability in connection with the use of the
foregoing, and does not sponsor, endorse, or recommend Artisan Partners or any of its products or services.
30-Day SEC Yield is based on a formula specified by the SEC that calculates a fund's hypothetical annualized income, as a percentage of its assets.
This hypothetical yield will differ from the fund's actual experience and as a result, income distributions from the fund may be higher or lower.
Credit Quality ratings are from S&P and/or Moody's. Ratings typically range from AAA (highest) to D (lowest) and are subject to change. The
ratings apply to underlying holdings of the Portfolio and not the Portfolio itself. If securities are rated by both agencies, the higher rating was used.
Securities not rated by S&P or Moody's are categorized as Unrated/Not Rated. Maturity Distribution represents the weighted average of the
maturity dates of the securities held in the Portfolio.
Artisan Partners Funds offered through Artisan Partners Distributors LLC (APDLLC), member FINRA. APDLLC is a wholly owned broker/dealer
subsidiary of Artisan Partners Holdings LP. Artisan Partners Limited Partnership, an investment advisory firm and adviser to Artisan Partners Funds, is
wholly owned by Artisan Partners Holdings LP.
© 2017 Artisan Partners. All rights reserved.
Not FDIC Insured | No Bank Guarantee | May Lose Value
1/10/2017 A16730L_vIS
For Financial Advisor Use Only. Not for Distribution to the Public.
ARTFX_Mcomm_vIS