Carmignac P. Flexible Bond: Letter from the Fund Managers

Published on
11 October 2023
-1.51%Carmignac P. Flexible Bond’s performance in the 3rd quarter of 2023 for the A EUR Share class.
-1.58%Reference indicator’s performance in the 3rd quarter of 2023 for ICE BofA ML Euro Broad index (EUR).
+0.07%Relative performance of the Fund over the quarter versus its reference indicator.

Carmignac Portfolio Flexible Bond shed -1.51% (class A shares) in the third quarter of 2023. However, it outperformed its reference indicator1, which was down -1.58% during the period.

The bond markets today

The third quarter of 2023 was marked by an unfavourable environment on the bond markets, with an unfavourable cocktail of accelerating long-term rates and widening credit spreads. Central bankers maintained a hawkish tone over the observation period, as illustrated by the further tightening of the Federal Reserve, which raised its key rate to 5.5%, and the two increases by the European Central Bank, which raised its deposit rate to 4%. In addition, the main monetary policymakers reconfirmed an inflation target of 2%, thereby recommending a level of interest rates that would be "high for longer", which led to a substantial rise in long-term interest rates at the end of the period. 10-year yields are now at their highest levels for more than 15 years, following a 74bp rise in the US 10-year yield over the quarter to 4.58% and a 44bp rise in the German 10-year yield over the same period to 2.85%.

Even so, leading indicators continued to flag during the quarter, with the PMI indices continuing to fall, to 47.0 in the eurozone and 50.2 in the United States respectively. While employment remained very robust in the United States, the confidence indices showed a considerable deterioration in US household morale, fuelling speculation that the labour market is easing. In the eurozone, the economic slowdown deepened, as shown by the contraction in industrial production indicators and the deterioration in the business climate index in Germany, which was already in contraction territory.

Inflation also continued to slow in the United States, where the headline component fell from +4% year-on-year to +3.6%, as in Europe, where headline inflation came out at +4.3% year-on-year compared with +5.4% at the start of the period. Unfortunately, the rebound in commodity prices and the decisions by OPEC member countries to cut crude oil production have considerably dampened the prospects of renewed enthusiasm among market operators. The environment on the credit front was also unfavourable, fuelled both by anxiety about the trajectory of the Chinese economy and its property sector in particular, and by the revaluation of long-term premiums linked to the high interest-rate environment, which caused credit margins to widen by +18bp on the Xover index and +4bp on the Main index over the quarter.

ASSET ALLOCATION

During the third quarter, we adapted the portfolio to different market phases:

Our management of interest-rate sensitivity remained dynamic in a particularly volatile interest-rate environment. The portfolio's overall sensitivity moved within a range of [5.4 ;7.1] and exposure to sovereign debt sub-segments changed considerably during the quarter. We consequently reduced our weighting in emerging, peripheral and US debt in favour of core 10-year eurozone yields, which we believe offer a more attractive risk/return profile given the more marked economic slowdown on the Old Continent. We also reallocated our short positions in Japanese yields from 10-years to shorter maturities (3 and 5 years), which are more sensitive to decisions by the Japanese central bank.

Our gross exposure to credit assets remained stable over the period, but we remained proactive in managing the portfolio's net exposure. During the summer, we implemented tactical CDS protection covering up to the entirety of our exposure to high-yield credit (14% of the fund's net assets) in order to hedge against the widening of credit margins following the resurgence of the property crisis in China. At the end of the period, we reinitiated these hedges to a lesser extent to cushion the downturn in the credit markets following the sharp acceleration in long-term interest rates.

Outlook

We continue to take a constructive view of the normalisation path for the economies and policies of the main central banks. Indeed, if core inflation continues to settle above the 2% target set by the main central bankers, we believe that the slowdown in the various economies as reflected in the leading indicators should enable the major central bankers to moderate their monetary tightening policies in the future. In the short term, this scenario argues for maintaining a high risk appetite in terms of both interest-rate sensitivity and credit weighting. We are therefore maintaining a duration close to our upper limit, considering the end of the tightening cycle, with a preference for the intermediate and long points of the yield curve, which are less volatile and benefit more from the economic slowdown. This environment also remains favourable to carry strategies, such as credit, which is attractively valued. Finally, we are maintaining long positions in real rates and break-even inflation rates, given the persistence of inflationary pressures (commodities and services).

1Reference indicator: ICE BofA Euro Broad Market index.

Carmignac Portfolio Flexible Bond

A flexible solution aiming to capture bond opportunities globallyDiscover the fund page

Carmignac Portfolio Flexible Bond A EUR Acc

ISIN: LU0336084032
Recommended minimum investment horizon
3 years
Risk indicator*
2/7
SFDR - Fund Classification**
Article 8

*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

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.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.
The Fund presents a risk of loss of capital.

Fees

ISIN: LU0336084032
Entry costs
1,00% 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
0,38% 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: LU0336084032
Carmignac Portfolio Flexible Bond2.0-0.70.11.7-3.45.09.20.0-8.04.7
Reference Indicator0.1-0.1-0.3-0.4-0.4-2.54.0-2.8-16.96.8
Carmignac Portfolio Flexible Bond- 0.4 %+ 2.2 %+ 1.0 %
Reference Indicator- 4.3 %- 2.7 %- 1.5 %

Source : Carmignac at 28 Mar 2024 .
​Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).

Related articles

[Background image] [CI] Blue sky and buildings
Global equities10 November 2022English

Carmignac Investissement Fund Update

2 minute(s) read
Find out more

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.