Hang in there at Artemis

However, it hasn't met its primary objective. Despite its good credentials, Artemis UK Special Situations has had a very difficult year which has detracted from its three and five-year performance figures. The main reason is that it has remained overweight in large-cap defensives including pharmaceutical groups GlaxoSmithKline and AstraZeneca. Exposure to these companies helped it outperform during 2008, but like many managers focused on defensive stocks, it has been left behind as small-caps and cyclicals rallied hard in 2009.

Large caps accounted for more than 60 per cent of the fund's assets at the start of the year, although as of the end of November this had been reduced to 42 per cent. The bulk of the fund's holdings are now in mid-caps, which account for 48.3 per cent of the fund.

But with investment experts predicting that larger companies will do better next year, the fund could still end up benefiting from its exposure to large-cap defensives. Some analysts also believe that small-caps, having rallied strongly over the past few months, will not progress as strongly in 2010.

Investors in special situations funds also have to be patient and prepared to accept short-term volatility as the underlying holdings can take some time to bear fruit - underperformance over the short term is not unexpected in this kind of fund, as its objective clearly states: "long-term capital growth by exploiting special situations."

The fund managers, Derek Stuart and Ruth Keattch, also report that recent months have been a fertile period for special situation investing, and they are seeing increasing numbers of exceptional medium and long-term investment opportunities.

Key fund data:

Source: FT Funds, *Artemis and **Morningstar as of 16 December.