Carmignac Portfolio Emerging Discovery: Letter from the portfolio managers
Carmignac Portfolio Emerging Discovery (A EUR ACC share class, ISIN LU03360838101) returned -5.01% during the fourth quarter versus +1,12% for its reference indicator2 thus giving up slightly more than the relative gains it had generated in the previous quarter. For the full year 2022, the fund returned an overall -22.39% versus -11.67% for its reference indicator. Much of the relative underperformance in 2022 was driven by the write-down of the fund’s holdings of Russian equities in the first quarter of 2022.
As we entered the fourth quarter of 2022, the fund was positioned conservatively with lower exposure to cyclical sectors and countries (e.g. financials, South Korea etc). This positioning had helped the fund deliver strong relative gains in the third quarter. While we had begun adding to the out-of-favour countries and sectors, we missed capturing some of the large and rapid relative moves. Our exposure to Indian equities, which had been a strong positive contributor to returns through much of 2022, faced headwinds as the Indian Rupee depreciated ~10% against the Euro contrasted by, for example, the ~5% appreciation in the Korean Won against the Euro. Our holdings across China and South Korea and in cyclical sectors such as industrials, financials and real estate contributed positively to returns in the fourth quarter. During the quarter we also participated in a couple of IPOs of highly promising businesses in India which contributed positively to the fund’s results.
As we look back at the full year 2022, the fund’s results were helped by our holdings in India and Brazil. The Indian market was relatively unscathed during what was a very volatile and difficult year for most asset-classes globally. The fund benefited from its ownership of strong consumer franchises in India such as Varun Beverages and Vedant Fashions (Manyavar). In Brazil, the fund’s main holding was the transmission utility Alupar Investimento which continues to deliver steady, predictable and market-beating returns. The main detractor for our funds was our massive over-weight position in Russia at the beginning of the year which had to be significantly written-down after the war started in Ukraine.
During the fourth quarter we initiated a position in Cimory, an innovative consumer foods company in Indonesia. Cimory was founded in 1993 by Bambang Sutantio and is now led by his son Farell Sutantio. Over the years, Cimory has established a track record of introducing innovative products at premium price points – from yoghurt drinks to ‘kanzler’ nuggets. Cimory’s management team is quick to experiment with new brand-building and distribution strategies. For example, they have created a unique direct-to-consumer distribution channel called Miss Cimory. This channel consists of over 400 saleswomen who distribute products weekly to over 200,000 households who would have been difficult to reach otherwise. This is a great example of a business innovation that is greatly beneficial to the community.
We also added to existing holdings such as TaskUs, a business process outsourcing (BPO) company with significant presence in the Phillipines. TaskUs is unique amongst its BPO peers in that it is almost exclusively focused on supporting high-growth tech businesses in the developed markets. TaskUs was a big winner for the fund in 2021 and we had taken profits as multiple expanded during the 2021 rally. 2022 was the reverse as growth slowed and valuation multiples collapsed across the technology sector. The attractiveness of TaskUs, like many other BPOs, is that it is a profitable and highly cash generative business. We believe the extreme moves in TaskUs’ stock price are not justified by the fundamentals of the business and have therefore used the sell-off to add to the fund’s holdings of the company.
Outlook for 2023
After a strong 2021 but a very difficult 2022, we are excited about the outlook for 2023. We continue to identify businesses that have a long runway for growth ahead of them, whose business models deliver robust returns and can easily fund the growth, whose management teams we trust and who we believe contribute to sustainable development of the communities they operate in.
We are mindful of two major opposing factors that will likely shape the coming months and quarters. On one hand, we are cautious about the impact of the impending recession in the major Developed Markets. At the same time, there are early signs that the Emerging Markets asset class could be coming into its own after lagging global equities for over a decade. The fund’s focus on small and mid-caps in Emerging Markets offers us a diversity of opportunities across themes in our major geographies – from leaders in export of services and resultant domestic consumption in India and ASEAN to goods export powerhouses of China and Vietnam and their domestic consumption; from advanced technology ecosystems in South Korea and Taiwan to economies enriched by critical commodities across Latin America, Middle East and Africa. We aim to continually strengthen the fund’s portfolio by taking advantage of opportunities offered by dislocations in any specific geography or theme.
1Performance of the A EUR acc share class ISIN code: LU0336083810. Past performance is not necessarily indicative of future performance. The return may increase or decrease as a result of currency fluctuations. Performances are net of fees (excluding possible entrance fees charged by the distributor). From 01/01/2013 the equity index reference indicators are calculated net dividends reinvested.
250% MSCI EM SmallCap (EUR) + 50% MSCI EM MidCap (EUR) (Reinvested net dividends rebalanced quarterly).
Carmignac Portfolio Emerging Discovery A EUR Acc
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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.
EMERGING MARKETS: Operating conditions and supervision in "emerging" markets may deviate from the standards prevailing on the large international exchanges and have an impact on prices of listed instruments in which the Fund may invest.
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.
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.
The Fund presents a risk of loss of capital.
* Risk Scale from the KID (Key Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time.
Carmignac Portfolio Emerging Discovery A EUR Acc
?Year to date
|Carmignac Portfolio Emerging Discovery A EUR Acc||-2.25 %||+13.12 %||+2.99 %||+3.76 %||+17.91 %||-8.90 %||+9.98 %||-0.16 %||+25.55 %||-22.39 %||+2.72 %|
|Reference Indicator||-5.19 %||+12.98 %||+0.19 %||+6.67 %||+18.14 %||-11.64 %||+14.39 %||+5.35 %||+21.27 %||-11.67 %||+3.00 %|
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|3 years||5 years||10 years|
|Carmignac Portfolio Emerging Discovery A EUR Acc||+2.40 %||-0.05 %||+2.92 %|
|Reference Indicator||+8.75 %||+3.26 %||+4.42 %|
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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 28/02/2023
|Entry costs :||4,00% of the amount you pay in when entering this investment. This is the most you will be charged. 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, but the person selling you the product may do so.|
|Management fees and other administrative or operating costs :||2,42% 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.|