Carmignac

Carmignac Sécurité: Letter from the Fund Manager

  • +2.31%
    Carmignac Sécurité’s performance

    in the 4th quarter of 2022 for the AW EUR Share class

  • -0.71%
    Reference indicator’s

    performance in the 4th quarter of 2022 for ICE BofA ML 1-3 years Euro All Government Index (EUR)

  • +3.02%
    Outperformance of the Fund

    over the quarter compared to the reference indicator

Carmignac Sécurité gained +2.31% in the fourth quarter of 2022, while its reference indicator was down –0.71%.1

The bond markets today

Bond markets posted record-breaking declines all year long and the fourth quarter was no exception. Conditions even worsened in Q4, making 2022 the bleakest year for sovereign bonds since the indices were first created. European sovereign indices were down by nearly 17% – and by close to 19% in France – underperforming a number of other asset classes and segments: corporate bonds, which shed almost 13% over the year; US Treasuries, which also fell by nearly 13% and recorded their worst losses since 1928; and, perhaps most surprisingly, most equity indices, which also ended 2022 in negative territory.

What we’re actually experiencing is an abrupt normalisation after nearly 15 years of large-scale liquidity injections and negative interest rates. This marks the end of an era of financial repression and opens up attractive prospects for fixed income, with levels of carry that we haven’t seen in over a decade.

The reasons for the abrupt normalisation in bond yields and credit spreads are the same as those outlined in our previous quarterly report:

  • Inflation, and especially core inflation (i.e. excluding food and energy prices), is stubbornly high. This has given rise to worries about knock-on effects. Headline inflation in the eurozone was down slightly, at just over 10% year over year in December, and core inflation should remain at around 5% in the first half of 2023.

  • Central banks have picked up the pace of monetary tightening in response, in order to restore their credibility and prevent inflation expectations from becoming unanchored. That’s in spite of the damage higher interest rates can cause to jobs and growth. The trend of monetary policy tightening around the world marks a real shift away from the policy of the past 15 years and is something we haven’t seen the likes of since the 1970s.

  • Governments have rolled out poorly targeted – and in any case probably not temporary – fiscal stimulus measures in order to help consumers cope with the higher cost of living. As we’ve seen in the UK, governments can lose their credibility quickly and with hefty consequences.

  • There has been no respite in the war between Russia and Ukraine. This is adding uncertainty, increasing inflationary pressure (e.g. through higher food and energy prices), and fuelling economic growth worries as a result of embargos (on oil) and disruptions to the supply of natural gas, minerals, fertiliser, and more.

At the ECB’s last meeting of the year, President Christine Lagarde surprised market participants who had become relaxed about inflationary risks and the prospects of monetary tightening. She took an unexpectedly hawkish stance – first, by announcing that the central bank would embark on a round of quantitative tightening (that is, winding down its balance sheet by not reinvesting the proceeds from maturing securities) to the tune of €15 billion per month starting in early March; and second, by indicating that the ECB will carry out additional 50-bp rate hikes in the first quarter of 2023, meaning its key policy rate could end up at over 3%.

What’s more, the Bank of Japan – which until now had been the only major central bank to maintain an accommodative stance – changed course on 20 December by expanding the range in which Japanese 10-year bond yields are allowed to fluctuate by 25 bp. All these factors pushed up sovereign bond yields around the world, after they had eased in the wake of good news about US inflation. Yields in Europe jumped by 70 bp in Q4 and ended the year at or near their 12-month highs. Italian bonds in particular suffered sell-offs, with the spread on 10-year BTPs relative to German Bunds widening from 180 bp at end-November to nearly 210 bp a month later.

In corporate bonds, spreads on both high yield and investment grade issues narrowed in Q4 after reaching record highs, although they did edge up following the ECB’s December meeting. Corporate bond prices have been underpinned recently by a levelling-off of US interest rates and brighter prospects for global growth now that Beijing has opened up China’s economy sooner than expected.

Performance

Carmignac Sécurité generated a positive return in the fourth quarter despite the challenging climate and record losses in fixed-income markets. That allowed us to erase all our underperformance relative to the reference indicator. We took advantage of the interest rate volatility in Q4 by increasing our modified duration to 2 in November and then lowering it to just under 1 ahead of both the ECB’s December meeting and the record volume of sovereign bond issues planned for January 2023. Our corporate bond holdings benefitted from the narrowing spreads in Q4 after what proved to be a difficult year for this segment. But one of our main performance drivers during the quarter (and for the months and quarters to come) is clearly the carry on our portfolio, which includes an annual yield to maturity of over 4.5% – a level we last achieved during the 2008–2009 financial crisis.

Positioning

We still believe that central banks won’t let their guard down just yet, especially in Europe, given that inflation has proven to be stubborn and monetary policy-makers are eager to restore their credibility. We will keep our portfolio positioned accordingly as we head into 2023. It’s also worth noting that an unprecedented volume of new issues is expected in the eurozone in 2023, right when two big purchasers of those bonds are withdrawing from the market: the ECB, which will begin a quantitative tightening cycle in March, and Japanese investors, who are finding attractive opportunities in their domestic market. Another factor that will maintain upwards pressure on bond yields is that the timing for a probable recession has been pushed back, given that China’s economy is opening up more quickly and more broadly than anticipated and that the latest macroeconomic readings were sanguine in both Europe and the US. Our portfolio’s modified duration is therefore still a low 0.9, reflecting short positions mainly on German and French sovereign bonds, all around the 10-year segment, so as to benefit from a renewed steepening of the yield curves after they inverted to an extent not seen in over 20 years.

Our corporate holdings are still mainly in the financial and energy sectors and in CLOs, since we believe they’ll gain the most from today’s inflationary environment and climbing interest rates. Almost 65% of our fund’s assets are currently allocated to corporate paper, including 8.8% to CLOs and 8% to high yield issues. Our portfolio’s average yield to maturity was 4.8% at end-December and will certainly be a key asset for our fund’s performance in 2023.

1 Reference indicator: ICE BofA 1-3 Year All Euro Government Index (coupons reinvested).
2 Source: Carmignac, Bloomberg, 31/12/2022. Performance of the AW EUR Acc. unit Until December 31, 2020, the reference indicator was the Euro MTS 1-3 years. KIID (Key Investor Information Document) risk scale. Risk 1 does not mean a risk-free investment. This indicator may change over time. Past performance is not a reliable indicator of future performance. Performance may change, either upwards or downwards, due to currency fluctuations. Performance is net of fees (excluding distributor's front-end load). ISIN code of the AW EUR Acc share class: FR0010149120

Carmignac Sécurité

Flexible, low duration solution to challenging European markets

Discover the fund page

Carmignac Sécurité AW EUR Acc

ISIN: FR0010149120

Recommended minimum investment horizon

Lower risk Higher risk

. .

1 2 3 4 5 6 7
Main risks of the Fund

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.

RISK OF CAPITAL LOSS: The portfolio does not guarantee or protect the capital invested. Capital loss occurs when a unit is sold at a lower price than that paid at the time of purchase.

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 KID (Key Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time.

Carmignac Sécurité AW EUR Acc

ISIN: FR0010149120
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 (YTD)
?
Year to date
Carmignac Sécurité AW EUR Acc +2.56 % +1.69 % +1.12 % +2.07 % +0.04 % -3.00 % +3.57 % +2.05 % +0.22 % -4.75 % -
Reference Indicator +1.76 % +1.83 % +0.72 % +0.30 % -0.39 % -0.29 % +0.07 % -0.15 % -0.71 % -4.82 % -

Scroll right to see full table

3 years 5 years 10 years
Carmignac Sécurité AW EUR Acc -0.87 % -0.43 % +0.52 %
Reference Indicator -1.91 % -1.20 % -0.18 %

Scroll right to see full table

​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 30/12/2022

Maximum subscription fees paid to distributors : 1,00%
Redemption fees : 0,00%
Ongoing Charges : 0.91%
Conversion Fee : 0%
Management fees : 0,80%
Performance fees : 0,00%

Marketing communication. Please refer to the KID, 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. Company. 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​ 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, 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