Carmignac

Carmignac Patrimoine: Letter from the Fund Managers

  • -1.04%
    Carmignac Patrimoine’s performance

    in the 3rd quarter of 2022 for the A EUR Share class

  • -0.81%
    Reference indicator’s performance


    in the 3rd quarter of 2022

  • +6.3%
    1-year volatility of the Fund


    versus +8.6% for the reference indicator

Over the period, Carmignac Patrimoine recorded a performance of -1.04%, in line with its reference indicator1 (-0.81%).

Market environment

The global macroeconomic backdrop is worse today than it was at the beginning of the quarter. Worldwide, an increasing share of economies are going into contraction, as inflation begins to pressure margins and purchasing power and tighter financial conditions weigh on demand.

The deteriorating growth outlook first led markets to anticipate an earlier than expected return to accommodative policies, resulting in a sharp rebound in risky assets as well as lower core rates across the board, most likely supported by investors’ extreme positioning. However, Central banks, chief among them the Federal Reserve, have been steadfast in their hawkish posture, reiterating the intention to bring inflation down “whatever the cost”. China remains an exception, maintaining accommodative policies to support faltering growth, worsened by the ongoing “zero covid policy”.

Sharp tightening by Central banks and markets’ disillusion stirred chaos, with some of the most volatile moves across asset classes. The yield on the US 10-year bond first dropped 1 percentage point to 2.5% before rallying to 4% over the rest of the period. Yields on British bonds rose almost 3%. The MSCI World rallied 20% from its low, then corrected 16% from its August high. Oil prices increased by $10 before losing $20 to $90 a barrel. Finally, the Dollar rallied 9% against a basket of currencies.

How did we fare in this context?

We pursued a consistent strategy throughout the quarter, allowing us to significantly reduce the strategy’s volatility over the period, in line with our Patrimoine mandate.

Among the positive contributors:

  • Our limited exposure to equities (15% on average), via short positions on indices, worked well as markets were volatile but down over the period.

  • Our legacy prewar Russian assets appreciated as European banks followed US banks and resumed trading in Russian bonds in August. We are committed to selling the remaining Russian securities in our portfolios, as market conditions allow, as protecting our clients’ interests remains our primary objective.

Among the negative contributors:

  • Our gold exposure, initiated to manage risk of further geopolitical escalation, suffered from rising real rates and a strengthening dollar. We believe the anticipated staglfationary environment will be positive for gold.

  • Our exposure to the long end of the German and US curve, initiated to manage the risk of stagflation after the Q2 rally in rates, were penalized by the sharp market reversal in August.

Our Chinese equity names, as accommodative policies in China struggled to materialize and the country continued to be crippled by Covid measures. We remain confident that an easing of covid restrictions and a positive policy mix will eventually be a strong impulse for the real economy.

Outlook

Central banks across the developed world have consistently reiterated that they are prepared to maintain tight monetary policies to reduce inflation, even if it meant causing a recession. The consequences of these hawkish monetary policies are not fully reflected yet in asset prices leading Carmignac Patrimoine to maintain a very cautious portfolio construction.
In the consumer-driven economy of the US, the rebound in real wages and a tight labor market should enable the avoidance of a near term recession. However, we anticipate a broadening and worsening of the profit contraction (already underway for the SME sector) and a collapse in capex. Additionally, the fed will need to push the unemployment rate higher for inflation to be under control. We therefore anticipate a profit recession leading to an economic recession as we approach mid-2023.
In Europe, recession could come as early as end of 2022 due to the energy shock. The severity of the recession will be dependent on the fiscal response and its magnitude – provided there is fiscal headroom. Indeed, potential for fiscal support is unevenly distributed across the Eurozone and risks to be somewhat offset by bond vigilantes or ECB hawkishness, the latter having to fend off the inflationary impact of energy prices and consequential risk of persistent inflationary pressure, along with the fall in the Euro effective FX rate.

In equity markets, we have already had a significant multiple contraction with the Forward S&P 500 multiple now at 15.6x down from 22x at the start the year. However, several factors lead us to believe that equity markets could go even lower. If analysts have trimmed their overly optimistic earnings estimates slightly in recent months, they’re still nowhere close to acknowledging the likelihood threat of a recession. Additionally, the level of long-term real rates (up 100 bp this year), the pace of this hiking cycle (fastest ever), the US Dollar strength and the unknown negative effects of accelerating QT keep us cautious. The TINA (There Is No Alternative) mantra for equities is likely to get increasingly challenged given the level of yields on the short term both in real and nominal terms.
This backdrop validates both a low equity exposure (around 8%) as well as lower exposure to high-multiple stocks. We continue to favor companies in recession-resilient sectors, including healthcare and consumer staples. Strong thematics like softwares and cloud computing and inflation beneficiaries like energy and materials. Despite the energy sector being cyclical, our view is that demand recovery and tightness in supply should lead to a multiyear cycle of capital spending by oil companies.

Fixed income markets remain dependent on monetary policies, but this should be less the case in 2023 considering the front load of interest rate hikes having been priced already. In fact, markets are currently pricing a peak at around 4.5% in terms of Fed funds terminal rate (as of 29.09.2022).
In the US, the odds of a recession are increasing as the stickiness of core inflation should lead the Fed to maintain a very tight monetary policy. Consequently, we are gradually building up a position on the long end of the curve. In Europe, we have no exposure on rates as the multiplication of fiscal policies across the continent are putting upwards pressure on long term rates.
On credit, if investors are already well compensated in terms of yield given the current default risk, the combination of slow growth, high inflation, elevated interest rate volatility and fears of gas supply interruption should continue to weigh on credit markets, despite increasingly attractive valuations. Therefore, we maintain a significant level of credit protection (13%) to hedge our investments (20%). We also hold 6% of CLOs (collateralized loan obligation), due to their floating rate structure backed by investment grade loans (BBB), offering both an interesting carry and some form of protection against rising rates.

Finally, on the currency front, FX moved are largely Fed dependent as few central banks will be able to follow the Fed in its hiking path. Everyone has an inflation problem, but the pain threshold is higher in the US than elsewhere. Therefore, we maintain a significant allocation to the USD (50%).

Carmignac Patrimoine

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Carmignac Patrimoine A EUR Acc

ISIN: FR0010135103

Recommended minimum investment horizon

Lower risk Higher risk

Potentially lower return Potentially higher return

1 2 3 4 5 6 7
Main risks of the Fund

EQUITY: The Fund may be affected by stock price variations, the scale of which is dependent on external factors, stock trading volumes or market capitalization.

INTEREST RATE: Interest rate risk results in a decline in the net asset value in the event of changes in interest rates.

CREDIT: Credit risk is the risk that the issuer may default.

CURRENCY: Currency risk is linked to exposure to a currency other than the Fund’s valuation currency, either through direct investment or the use of forward financial instruments.

The Fund presents a risk of loss of capital.

* Risk Scale from the KIID (Key Investor Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time.

Carmignac Patrimoine A EUR Acc

ISIN: FR0010135103
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 (YTD)
?
Year to date
Carmignac Patrimoine A EUR Acc +5.42 % +3.53 % +8.81 % +0.72 % +3.88 % +0.09 % -11.29 % +10.55 % +12.40 % -0.88 % -13.41 %
Reference Indicator +5.89 % +4.67 % +15.97 % +8.35 % +8.05 % +1.47 % -0.07 % +18.18 % +5.18 % +13.34 % -7.73 %

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3 years 5 years 10 years
Carmignac Patrimoine A EUR Acc -0.38 % -1.31 % +1.16 %
Reference Indicator +3.90 % +5.27 % +6.41 %

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​Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).

Source : Carmignac at 31/10/2022

Maximum subscription fees paid to distributors : 4,00%
Redemption fees : 0,00%
Ongoing Charges : 1.90%
Conversion Fee : 0%
Management fees : 1,50%
Performance fees : 20,00%

Marketing communication. Please refer to the 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.​

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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. Company. The risks, fees and ongoing charges are described in the KIID (Key Investor Information Material). The KIID must be made available to the subscriber prior to subscription. The subscriber must read the KIID. 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, KIIDs, NAV 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

  • UK: This document was prepared by Carmignac Gestion and/or Carmignac Gestion Luxembourg and is being distributed in the UK by Carmignac Gestion Luxembourg UK Branch (Registered in England and Wales with number FC031103, CSSF agreement of 10/06/2013).​ ​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 Financial Conduct Authority (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: Second Floor, 52-54 Gracechurch Street, London EC3V 0EH, UK; Registered in England and Wales with number 4162989. Carmignac Gestion Luxembourg SA, UK Branch (Registered in England and Wales with number FC031103, CSSF agreement of 10/06/2013) has been appointed as the Investment Manager and distributor in respect of the Company.

  • In Switzerland: the prospectus, KIIDs 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