Carmignac

European Long Short Equity: Quarterly Letter

  • Author(s)
    Malte Heininger
  • Published
  • Length
    4 minute(s) read
  • +2.20%

    Carmignac Portfolio Long Short European Equities performance in the 2nd quarter of 2022 for the F EUR Share class

  • +0.14%

    Performance of the Fund
    Year To Date

Our strategy, Carmignac Portfolio Long Short European Equities, had a performance of +2.20% during the second quarter, bringing the performance to +0.14% this year, in our F share class, net of fees.

Quarterly Performance Review

The second quarter was one of the worst quarters for equities in recent history with the Eurostoxx 50 losing 12%, while the Nasdaq plunged 23%. As flagged in our last two letters, the combination of an asset price bubble, spiraling inflation and rising rates provided a difficult set-up for asset prices. We focused most of our work on the short side this quarter and found many new names, particularly in our aggressive accounting sub-bucket.

As seen in the table below, we generated positive alpha in our Alpha Shorts bucket, while our Core Longs suffered from the market backdrop.

YTD ATTRIBUTION BY BUCKET
CORE LONGS-11.24
TRADING LONGS-2.07
RELATIVE VALUE/SPECIAL SIT-0.17
ALPHA SHORTS+12.28
HEDGING+3.13


Data as of 30/06/2022. Source: Carmignac, 30/06/2022.



The overall outlook for the market is unfortunately still very bleak, particularly for Europe. While most central banks have started to raise rates aggressively, the European base rate is still negative, while inflation is heading towards double digits and the price/wage spiral is in full swing. A collapsing currency is a positive for exporters, but obviously amplify the pressure from most input costs that are priced in USD.

The ECB, which is mandated to keep price stability, is sitting with an inflation at 9% and with negative interest rates at -50bps. Meanwhile, the European Economy, led by a hugely squeezed consumer and an unprecedented energy crisis, is heading into a deep recession. In addition, many of its member states are highly indebted and cannot afford to service their debt at a rate that would be adequate for the current rate of inflation.

The UK, our home base, is in a similarly miserable position. The already weak, post-Brexit, economy is suffering from serious staff shortages and a lack of skilled workers. The dysfunctional government, combined with a collapsing currency, have increased the upward pressure on a 40year high inflation rate. And while rents are rising, the combination of rising mortgage rates, higher building costs and squeezed incomes, make house buying the least affordable since 2006. Given the lack of a longer dated fixed mortgage market, rising floating rates will put more pressure on house owners in the UK than in Europe or the US.

What is our outlook for the coming months?

We do not expect a V shape recovery like we have gotten used to since the 2008 financial crisis. The inflationary forces are, at least partly, unlikely to go away quickly, so central banks are unlikely to bail us out in the short run. The combination of rising rates and a recession will obviously help to bring down demand for goods and services and depress asset prices, but we are concerned that in recent history, all the zero rate policies and the money printing had a direct impact on asset prices, but there was no correlation with headline inflation. Thus, to assume that inflation will disappear or go back to 2%, only because we are reversing actions that did not influence inflation in the first place is not necessarily right. As Powell keeps on reminding us, inflation is extremely complex, and many factors are outside of their control.

That said, every crisis provides opportunities and a lot of stocks have come down a long way and seen significant multiple compression. Puma, one of our top convictions over the last few years, is down more than 40% this year, while its fundamentals remain very strong. ASM International is also down 40%, Salesforce is back to its 2018 level and even a defensive play like Nestlé is down 15%.

Given the overall bearish set-up without much green shoots on the horizon, as we wait for the stabilization of long-term rates and recessionary fears, we think the set-up for high quality businesses with strong structural drivers starts to look more favourable. We have a wish list of companies where the IRRs on a 3-year horizon with conservative assumptions start to look attractive and aim to build or increase positions here over the coming weeks and months.

We still have a strong idea flow on the short side. The consumer discretionary and industrials sectors have been very good hunting grounds as the mixture of rising raw material prices, high inventories and fading demand from a squeezed consumer create a toxic combination.

A flexible Long/Short approach to European Equities

Carmignac Long-Short European Equities A EUR Acc

ISIN: FR0010149179

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

RISK ASSOCIATED WITH THE LONG/SHORT STRATEGY: This risk is linked to long and/or short positions designed to adjust net market exposure. The fund may suffer high losses if its long and short positions undergo simultaneous unfavourable development in opposite directions.

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.

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.

Carmignac Portfolio Long-Short European Equities A EUR Acc

ISIN: LU1317704051

Recommended minimum investment horizon

Lower risk Higher risk

Potentially lower return Potentially higher return

1 2 3 4 5 6 7
Main risk of the Fund

RISK ASSOCIATED WITH THE LONG/SHORT STRATEGY: This risk is linked to long and/or short positions designed to adjust net market exposure. The fund may suffer high losses if its long and short positions undergo simultaneous unfavourable development in opposite directions.

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.

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 Long-Short European Equities A EUR Acc

ISIN: FR0010149179
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 (YTD)
?
Year to date
Carmignac Long-Short European Equities A EUR Acc +8.43 % +1.27 % +2.52 % -8.03 % +8.85 % +14.57 % +4.35 % -1.32 % +5.18 % +12.62 % -2.46 %
Reference Indicator +7.01 % +10.80 % +2.06 % +3.66 % +1.92 % +4.38 % -2.87 % +6.80 % +0.75 % +6.22 % -

Scroll right to see full table

3 years 5 years 10 years
Carmignac Long-Short European Equities A EUR Acc +6.11 % +5.33 % +3.50 %
Reference Indicator - - -

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 31/08/2022

Maximum subscription fees paid to distributors : 9,00%
Redemption fees : 0,00%
Ongoing Charges : 2.57%
Conversion Fee : 0%
Management fees : 1,50%
Performance fees : 20,00%

Carmignac Portfolio Long-Short European Equities A EUR Acc

ISIN: LU1317704051
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 (YTD)
?
Year to date
Carmignac Portfolio Long-Short European Equities A EUR Acc - - - -0.18 % +9.11 % +16.06 % +3.39 % -0.32 % +6.92 % +12.95 % -2.39 %
Reference Indicator - - - -2.74 % +1.92 % +4.38 % -2.42 % +3.42 % -0.13 % +3.00 % -

Scroll right to see full table

3 years 5 years 10 years
Carmignac Portfolio Long-Short European Equities A EUR Acc +7.00 % +5.80 % -
Reference Indicator - - -

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 31/08/2022

Maximum subscription fees paid to distributors : 9,00%
Redemption fees : 0,00%
Ongoing Charges : 1.79%
Conversion Fee : 1%
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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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.

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