During the third quarter of 2023, the return of Carmignac Portfolio Grande Europe (A EUR Acc share class) was a fall of 4.44%, providing a return below the reference indicator which fell 2.11%.
Following the strong performance of European equities in the first half of the year, markets fell back in the third quarter. While the second quarter earnings reporting season had been relatively uneventful, and consistent with full year expectations of little profits growth overall, worldwide pressure on stock prices came once again from ever-rising bond yields. Despite falling inflation and weak growth in the region, German 10-year bund yields rose from 2.4% to 2.8% in the period, continuing an ascent from zero at the start of 2022. A function of the (European Central Bank) ECB monetary policy which, while it hiked rates to 4% – the highest level since the euro was created – has signalled that the 18-month period of increases has now ended.
This backdrop proved difficult for the higher rated quality stocks and sectors that we favour, particularly Industrials and Technology, but supportive for low-rated / low-quality sectors where we have no exposure such as Commodities, Banks, and Oil. Being a temporary headwind for our Fund, we believe this dynamic is not sustainable for much longer. In fact, economic growth is weak, and inflation is falling. As a result, we are closer to the end of the hiking cycle. Furthermore, consensus expectations for a soft landing in 2024 might even been too optimistic when considering latest comments from economically sensitive sectors such as building materials and semiconductors. If this prudence is to be justified, then the more visible sales and profits growth traits of our quality names should increasingly be rewarded.
Nonetheless, in the quarter, some stock specific events disappointed and weighed on returns. Orsted, the wind farm developer, took additional write downs on unprofitable projects in the US due to cost overruns and rising interest costs, among other things. This was extremely surprising and disappointing news for us especially since management, only few weeks earlier at their capital markets day, presented a totally different scenario, with the worst of the problems being behind them. We sold out of our remaining holding on the announcement when the stock fell significantly. Lonza, the contract manufacturer of drugs for the pharmaceutical sector, also provided a negative return for the Fund. While the business has had ongoing operational problems related to delayed start of new projects and some weakness caused by lack of funding for their smaller biotechnology clients, these issues have been well flagged by management and accounted for by investors. However, the surprise announcement in September that the CEO of the company was leaving shocked the market. While we were disappointed with Orsted management, in Lonza’s case we believe investors have over reacted, and thus decided to reinforce our position in the name during the period.
But not all is bad news. A mention of honour goes to Novo Nordisk, the drug company at the forefront of the new class of drugs GLP-1 agonists, engaged in a fight to treat diabetes and obesity. As well as continued strong demand for their products, a clinical trial in the period demonstrated a higher-than-expected improvement in cardiovascular outcomes (i.e., fewer strokes and heart attacks) for patients on their weight loss drug. As a result, we maintained a very large position in the name believing analyst forecasts are just scratching the surface of how large the opportunity could be, especially given the widening of insurer and reimbursement coverage expected on the back of the trials’ latest results.
Argenx, the Belgian listed biotech, also saw its stock rise significantly after its lead compound efgartigimod demonstrated strong clinical trial results in its second indication, called CIDP, which is a chronic, progressive neurological disorder. As well as widening the therapeutic area the molecule is approved for, the trial confirms the efficacy of the product beyond its first indication, Myasthenia Gravis, thus likely improving the probability of further success in the multitude of related illnesses it is in clinical trials for.
Having added numerous names to the Fund in 2022, when we picked up many high-quality names sold off in the volatility caused by rising rates, activity has subsided so far this year. Being bottom-up investors focused on high quality / sustainable businesses, we have a long-term view and expect to benefit from the peak and subsequent fall in interest rates and bond yields, the likely outcome of the current economic environment. The superior profit growth and visibility of sales and profits of our names, in fact, is likely to be reflected in better performance, especially against an uncertain economic background.
However, we are not reliant on that. We have an investment horizon of 5 years, and we stick to our process of focusing on profitable companies with high returns on capital, reinvesting for growth and having positive outcomes. We believe these companies will continue to deliver the best long-term returns for investors across different market environments.
Reference indicator: Stoxx Europe 600 (NR, EUR). From 01/01/2013 the reference indicator is calculated net of dividends reinvested. * Mark Denham took over the Fund on the 17/11/2016.
Source: Company website, Bloomberg, Carmignac, 30 September 2023
*Risk Scale from the KID (Key Information Document) / KIID (Key Investor Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time. **Sustainable Finance Disclosure Regulation (SFDR) 2019/2088. EU Act that requires asset managers to classify funds into categories, “Article 8” funds promote environmental and social characteristics, “Article 9” funds have sustainable investments as a measurable objective. In addition to not promoting environmental or social characteristics, "Article 6" funds have no sustainable objectives.
|Carmignac Portfolio Grande Europe||8.56||10.32||-1.40||5.11||10.36||-9.56||34.79||14.46||21.73||-21.09|
|Carmignac Portfolio Grande Europe||+3.08 %||+9.16 %||+6.59 %|
|Reference Indicator||+8.49 %||+7.90 %||+6.30 %|
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).
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.
This material may not be reproduced, in whole or in part, without prior authorisation from the Management Company. This material does not constitute a subscription offer, nor does it constitute investment advice. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. This material has been provided to you for informational purposes only and may not be relied upon by you in evaluating the merits of investing in any securities or interests referred to herein or for any other purposes. The information contained in this material may be partial information and may be modified without prior notice. They are expressed as of the date of writing and are derived from proprietary and non-proprietary sources deemed by Carmignac to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Carmignac, its officers, employees or agents.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor). The return may increase or decrease as a result of currency fluctuations, for the shares which are not currency-hedged.
Reference to certain securities and financial instruments is for illustrative purposes to highlight stocks that are or have been included in the portfolios of funds in the Carmignac range. This is not intended to promote direct investment in those instruments, nor does it constitute investment advice. The Management Company is not subject to prohibition on trading in these instruments prior to issuing any communication. The portfolios of Carmignac funds may change without previous notice. The reference to a ranking or prize, is no guarantee of the future results of the UCIS or the manager.
Morningstar Rating™ : © Morningstar, Inc. All Rights Reserved. The information contained herein: is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
Access to the Funds may be subject to restrictions regarding certain persons or countries. This material is not directed to any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the material or availability of this material is prohibited. Persons in respect of whom such prohibitions apply must not access this material. Taxation depends on the situation of the individual. The Funds are not registered for retail distribution in Asia, in Japan, in North America, nor are they registered in South America. Carmignac Funds are registered in Singapore as restricted foreign scheme (for professional clients only). The Funds have not been registered under the US Securities Act of 1933. The Funds may not be offered or sold, directly or indirectly, for the benefit or on behalf of a «U.S. person», according to the definition of the US Regulation S and FATCA.
The risks, fees and ongoing charges are described in the KID (Key Information Document). The KID must be made available to the subscriber prior to subscription. The subscriber must read the KID. Investors may lose some or all their capital, as the capital in the funds are not guaranteed. The Funds present a risk of loss of capital.
The Funds’ prospectus, KIDs, NAVs and annual reports are available at www.carmignac.com, or upon request to the Management Carmignac Portfolio refers to the sub-funds of Carmignac Portfolio SICAV, an investment company under Luxembourg law, conforming to the UCITS Directive. The French investment funds (fonds communs de placement or FCP) are common funds in contractual form conforming to the UCITS or AIFM Directive under French law.
In France, Luxembourg, Sweden: The risks, fees and ongoing charges are described in the KID (Key Information Document). The KID must be made available to the subscriber prior to subscription. The subscriber must read the KID. Investors may lose some or all their capital, as the capital in the funds are not guaranteed. The Funds present a risk of loss of capital. The Funds’ prospectus, KIDs, NAV and annual reports are available at www.carmignac.com, or upon request to the Management.
In the United Kingdom: the Funds’ respective prospectuses, KIIDs and annual reports are available at www.carmignac.co.uk, or upon request to the Management Company, or for the French Funds, at the offices of the Facilities Agent at BNP PARIBAS SECURITIES SERVICES, operating through its branch in London: 55 Moorgate, London EC2R. This document was prepared by Carmignac Gestion, Carmignac Gestion Luxembourg or Carmignac UK Ltd. FP Carmignac ICVC (the “Company”) is an Investment Company with variable capital incorporated in England and Wales under registered number 839620 and is authorised by the FCA with effect from 4 April 2019 and launched on 15 May 2019. FundRock Partners Limited is the Authorised Corporate Director (the “ACD”) of the Company and is authorised and regulated by the FCA. Registered Office: Hamilton Centre, Rodney Way, Chelmsford, Essex, CM1 3BY, UK; Registered in England and Wales with number 4162989. Carmignac Gestion Luxembourg SA has been appointed as the Investment Manager and distributor in respect of the Company. Carmignac UK Ltd (Registered in England and Wales with number 14162894) has been appointed as a sub-Investment Manager of the Company and is authorised and regulated by the Financial Conduct Authority with FRN:984288.
In Switzerland: the prospectus, KIDs and annual report are available at www.carmignac.ch, or through our representative in Switzerland, CACEIS (Switzerland), S.A., Route de Signy 35, CH-1260 Nyon. The paying agent is CACEIS Bank, Montrouge, Nyon Branch / Switzerland, Route de Signy 35, 1260 Nyon.
The Management Company can cease promotion in your country anytime.
Investors have access to a summary of their rights in English on the following links: UK ; Switzerland ; France ; Luxembourg ; Sweden.