A complex market environment – at first sight
Despite a deteriorating health situation in many countries with the arrival of new Covid-19 variants, the acceleration of vaccination programmes is setting the stage for a gradual reopening of economies. After the turbulent conditions of 2020, a broad worldwide economic upswing appears to be taking shape in 2021 against a backdrop of accommodative policies from the US and EU central banks.
Impact on fixed income markets:
A return to normal, with valuations for a large share of bonds recovering to where they stood before the crisis, which could be considered stretched.
Implications for investors:
A low interest-rate environment offering low returns, which not only fails to reward risk, but also provides inadequate protection to investors in the event of a hike in interest rates which could wipe out value.
Under these circumstances, how to find value in fixed income markets without having to pay an excessive price?
By opting for a flexible, actively managed fixed income asset allocation solution which is able to capture fixed income opportunities wherever they crop up, avoiding the pitfalls of traditional or passive investment styles.
Access the entire fixed income space with flexibility
Carmignac Portfolio Flexible Bond is an international fixed income fund fully hedged against currency risk. The Fund aims to outperform its reference indicator1 and generate returns over a minimum recommended investment period of three years.
Guillaume Rigeade and Eliezer Ben Zimra, co-managers of the Fund with over 8 years’ of experience working on this fixed income strategy, have been able to generate performance over the years, whether interest rates were rising or stuck at extremely low levels.
Where do we find value today?
Carmignac Portfolio Flexible Bond is primarily invested in three major themes relating to where value lies. This enables the Fund to generate performance in a context of low yields on fixed income markets:
Portfolio exposure: 9%
The gradual reopening of economies should benefit many sectors that, previously, were heavily impacted by the Covid-19 crisis. With that in mind, Carmignac Portfolio Flexible Bond has invested with extreme selectivity in corporate bonds in the airline, automotive and tourism sectors, while gaining exposure to the highly growth-sensitive energy sector.
SUBORDINATED FINANCIAL DEBT
Portfolio exposure: 11%
At a time of increasingly low yields on credit markets, European subordinated financial debt continues to offer value. That advantage is being driven by both short-term factors like European Central Bank support, attractive valuations, and long-term factors such as the high capital requirements imposed on this sector by EU regulations.
EMERGING MARKET DEBT
Portfolio exposure: 20%
The Fund Managers have also increased their exposure to emerging market debt, which should benefit from the global growth recovery, rising commodity prices and the intermediate-term prospects for a weaker dollar. Opportunities in this market are selected by our specialists of the emerging universe. Their current focus is on debt denominated in strong currencies rather than local currencies.
Source: Carmignac, 16/4/2021.
Carmignac Portfolio Flexible Bond A EUR Acc
Recommended minimum investment horizon
Lower risk Higher risk
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.
* Risk Scale from the KID (Key Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time.
1 Reference indicator: ICE BofA ML Euro Broad Market Index (coupons reinvested).