Carmignac P. Credit: Letter from the Fund Managers

Published on
11 October 2023
+1.74%Carmignac P. Credit’s performance in the 3rd quarter of 2023 for the A EUR Share class.
+0.64%Reference indicator’s performance in the 3rd quarter of 2023 for the 75% ICE BofA Euro Corporate Index et 25% ICE BofA Euro High Yield Index.
+4.29%

Of annualized performance since launch of the fund (31/07/2017), compared to
-0.27% for its reference indicator1.

Carmignac Portfolio Credit was up +1.74% during Q3 2023, versus +0.64% for its reference indicator1. Since the beginning of the year, the fund is up +4.69% vs. +3.27% for its reference indicator, outperforming by 1.42%.

Overview of current credit markets

After the volatile episodes surrounding the demise of Silicon Valley Bank and Credit Suisse, we saw a return to calm in May and June which persisted during the third quarter of 2023. Primary markets were well functioning and very active in most corners of our investment universe, offering attractive new investment opportunities, especially in high yield in developed and emerging markets.

Now that fixed income investors enjoy low risk investment options that offer meaningful positive return (such as short-term treasuries), they feel much less need to stretch across the risk spectrum to reach for yield than they used to. This has re-established the balance between supply and demand for credit risk in favour of investors. For example, as the primary market reopened widely in the past months, we have seen plain vanilla BB issuers in the primary market financing themselves at spreads 20 to 30% higher than in 2019 or 2021, all things being equal. We believe investors are now well compensated in the high yield space, even taking into account an expected pickup in defaults. Complex situations attract even higher remunerations compared to the past, which is illustrated by the generous spreads on offer in the “collateralized loan obligation” space (CLO tranches have been the largest contributor to performance of the fund so far this year).

Positioning

As a result, the fund offers now a yield superior to 9% while maintaining a solid credit quality (with an average BB+ rating) and a high level of diversification. This is despite maintaining c. 10% of hedges through CDS on HY indices. This high level of carry offers meaningful protection against the impact of potential credit incidents or the widening of spreads. In addition, our exposure to (floating) CLO tranches and inflation friendly sectors such as natural resources and financials should mitigate the impact of interest rate volatility on performance going forward.

Outlook

As we discussed in our last letter, this return of value for the credit markets as well as the presence of wide complexity premia available to bond pickers is very exciting for the future performance of Carmignac Portfolio Credit. Additionally, we expect this higher cost of financing across the board will restore an environment for credit defaults, similar to what we had for the first three decades of the high yield market, and hence attractive opportunities for high alpha distressed debt investments.

1Source: Carmignac, Bloomberg, 30/09/2023

Carmignac Portfolio Credit

Access the entire credit spectrum for maximum flexibilityDiscover the fund page

Carmignac Portfolio Credit A EUR Acc

ISIN: LU1623762843
Recommended minimum investment horizon
3 years
Risk indicator*
3/7
SFDR - Fund Classification**
Article 6

*Risk Scale from the KID (Key Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time. **The Sustainable Finance Disclosure Regulation (SFDR) 2019/2088 is a European regulation that requires asset managers to classify their funds as either 'Article 8' funds, which promote environmental and social characteristics, 'Article 9' funds, which make sustainable investments with measurable objectives, or 'Article 6' funds, which do not necessarily have a sustainability objective. For more information please refer to https://eur-lex.europa.eu/eli/reg/2019/2088/oj.

Main risks of the fund

Credit: Credit risk is the risk that the issuer may default.Interest Rate: Interest rate risk results in a decline in the net asset value in the event of changes in interest rates.Liquidity: Temporary market distortions may have an impact on the pricing conditions under which the Fund might be caused to liquidate, initiate or modify its positions.Discretionary Management: Anticipations of financial market changes made by the Management Company have a direct effect on the Fund's performance, which depends on the stocks selected.
The Fund presents a risk of loss of capital.

Fees

ISIN: LU1623762843
Entry costs
2,00% of the amount you pay in when entering this investment. This is the most you will be charged. Carmignac Gestion doesn't charge any entry fee. The person selling you the product will inform you of the actual charge.
Exit costs
We do not charge an exit fee for this product.
Management fees and other administrative or operating costs
1,20% of the value of your investment per year. This estimate is based on actual costs over the past year.
Performance fees
20,00% when the share class overperforms the Reference indicator during the performance period. It will be payable also in case the share class has overperformed the reference indicator but had a negative performance. Underperformance is clawed back for 5 years. The actual amount will vary depending on how well your investment performs. The aggregated cost estimation above includes the average over the last 5 years, or since the product creation if it is less than 5 years.
Transaction Cost
0,43% of the value of your investment per year. This is an estimate of the costs incurred when we buy and sell the investments underlying the product. The actual amount varies depending on the quantity we buy and sell.

Annualised Performance

ISIN: LU1623762843
Carmignac Portfolio Credit1.81.720.910.43.0-13.010.6
Reference Indicator1.1-1.77.52.80.1-13.39.0
Carmignac Portfolio Credit+ 0.2 %+ 3.7 %+ 5.3 %
Reference Indicator- 1.6 %+ 0.2 %+ 0.7 %

Source: Carmignac at 14 Jun 2024.
​Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).

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Marketing communication. Please refer to the KID/KIID, prospectus of the fund before making any final investment decisions. This document is intended for professional clients.

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