Carmignac Portfolio Emerging Patrimoine: Letter from the Fund Managers - Q3 2026

In the third quarter of 2026, Carmignac Portfolio Emerging Patrimoine posted a performance of -0.47%, compared with +0.11% for its reference indicator. The Fund’s performance was primarily impacted by equity selection, while local rates also weighed slightly on returns. Conversely, currency selection and hard currency debt contributed positively, helping to partially offset these losses. Year-to-date, the Fund has continued to deliver a robust performance of +13.66%, outperforming its reference indicator, which gained +12.83%.

The third quarter of 2026 marked a more challenging and volatile environment for emerging markets following the strong performance recorded during the first half of the year. Renewed geopolitical tensions in the Middle East and further disruptions to energy supply pushed oil and European gas prices higher, reviving inflation concerns across developed economies. In the United States, headline inflation rose to 3.4% in August, while euro area inflation accelerated to 3.8% in September, reinforcing expectations that price pressures could prove more persistent. This led to a sharp repricing of global interest-rate expectations, with both the Federal Reserve and the European Central Bank raising policy rates in September and contributing to a broad sell-off across developed-market sovereign bonds. Despite these headwinds, emerging market assets remained relatively resilient, supported by solid macroeconomic fundamentals and continued strength in corporate earnings.

Emerging market equities ended the quarter broadly flat, although this masked significant volatility and dispersion across regions and sectors. North Asian technology stocks experienced a sharp correction early in the quarter following their exceptional rally in the first-half of the year, as crowded positioning and profit-taking weighed on AI- and semiconductor-related names. Markets subsequently recovered as strong hyperscaler investment, robust semiconductor demand and rising earnings expectations reaffirmed the strength of the underlying AI investment cycle. More broadly, the technology export cycle continued to expand across Asia, reinforcing the region's central role in global semiconductor and digital infrastructure supply chains.

Elsewhere, market performance was increasingly differentiated by countries' exposure to commodities and global interest rates. Higher oil prices supported selected commodity exporters, while weighing on energy-importing economies. Brazil proved relatively resilient, benefiting from favourable terms of trade, elevated real interest rates and growing expectations of a potentially more market-friendly political backdrop. By contrast, India and several Asian and Central European markets faced pressure from higher energy costs and global yields. In China, domestic activity remained subdued amid persistent weakness in property and household credit, although continued policy support for strategic technologies and a more stable Sino-US relationship provided some support to investor sentiment.

Fixed income markets came under greater pressure as the rise in developed-market yields spilled over into emerging markets. Local-currency debt was particularly affected in Central and Eastern Europe, where higher energy prices renewed inflation concerns and pushed local yields higher. Hard-currency sovereign debt proved relatively more resilient for much of the quarter, supported by attractive carry and improving sovereign fundamentals, before coming under pressure towards quarter-end as higher core yields were compounded by wider credit spreads. High-yield sovereign debt generally held up better than investment grade given its lower sensitivity to the rise in developed-market rates.

Emerging market currencies displayed more divergent performance. Asian currencies proved relatively resilient, supported by strong technology exports and external balances, while the Colombian peso also performed well. In contrast, several Central and Eastern European currencies weakened as higher energy prices deteriorated the regional inflation outlook. Overall, the quarter highlighted the resilience of emerging markets despite a more challenging global backdrop. Strong earnings growth, improved macroeconomic fundamentals and attractive valuations remain supportive, although elevated global yields, geopolitical uncertainty and greater market dispersion are likely to keep volatility high.

During the third quarter, the Fund posted a negative performance, primarily impacted by equity selection and, to a lesser extent, by local-currency rates. By contrast, currency allocation and hard-currency debt contributed positively, helping to partially offset these losses.

On the equity side, performance was mainly affected by our exposure to Asia, with South Korea the largest detractor. Samsung Electronics and SK Square were impacted by the correction in Korean semiconductor and AI-related stocks, as rising global yields and concerns around elevated valuations led investors to take profits following a particularly strong first half of the year. Hyundai Motor also weighed on returns, amid production disruptions related to labour strikes and the negative impact of a stronger Korean won on earnings expectations. In China, Hainan Drinda New Energy Technology was affected by persistent overcapacity and pricing pressure across the photovoltaic industry, while CATL came under pressure as Chinese automakers increasingly diversified their battery suppliers. Our Latin American equity exposure, particularly in Brazil and Argentina, also contributed negatively.

Within fixed income, local-currency debt made a slight negative contribution. Renewed geopolitical tensions and higher energy prices triggered a broad rise in global yields, weighing on emerging-market rates. Our long positions in EMEA were particularly affected, notably in South Africa, Poland, the Czech Republic and Hungary. As net importers of energy, these economies were particularly sensitive to higher energy prices, which reinforced inflation concerns and put upward pressure on local yields. Our long positions in Colombian local government bonds also detracted, as renewed inflation pressures prompted Banco de la República to raise its policy rate by 25 basis points to 12.25% in September. These losses were almost entirely offset by our short positions in US Treasuries and German Bunds.

Within hard-currency sovereign debt, performance was more mixed. Argentina was among the main detractors, as sovereign bonds came under pressure towards the end of the quarter amid higher US Treasury yields, slower reserve accumulation and rising uncertainty ahead of the 2027 elections. Conversely, selected hard-currency positions, including issuers in the energy sector, contributed positively and helped mitigate these losses.

Currencies were the strongest contributor to performance and helped meaningfully offset losses elsewhere in the portfolio. Our currency allocation benefited from exposure to selected Asian currencies. The Kazakh tenge performed well, supported by Kazakhstan’s position as a major oil and gas exporter, higher energy prices and attractive carry. The South Korean won and Taiwan dollar also contributed positively, while our exposure to the Chinese renminbi provided an additional source of diversification. Outside Asia, positions in the Colombian peso and Nigerian naira also generated positive returns.
Finally, our credit hedges contributed modestly as spreads widened towards quarter-end. CDS protection on US high-yield and Itraxx Xover risk helped mitigate the deterioration in global
risk sentiment, providing useful downside protection during the period.

Despite renewed geopolitical tensions and the broader rise in global bond yields, emerging market assets remained relatively resilient during the quarter. While emerging markets have been sought primarily for their superior growth potential, they now also benefit from a stronger policy mix, with better-contained inflation, improved fiscal and external balances, larger foreign-exchange reserves, lower leverage and elevated real yields. The political backdrop has also become increasingly supportive, particularly in Latin America, where a broader shift towards more market-friendly policies is taking shape. This trend could be reinforced in Brazil, where a more fiscally orthodox outcome in the upcoming elections would provide an additional catalyst for Brazilian assets. Overall, we remain constructive on emerging markets assets.

Against this more volatile backdrop, we adopted a somewhat more cautious positioning, by increasing our hedges to reduce net equity exposure from around 36% at the end of June to approximately 28% at the end of September , while gradually reducing modified duration from 2.8 to around 0.3. This was achieved primarily through lower exposure to local-currency debt and increased short positions in US Treasuries and German Bunds. Nevertheless, we remain constructive on emerging market assets over the medium term.

On equities, we remain constructive but increasingly selective, with a strong focus on valuations. AI hardware remains a core conviction, while we continue to diversify our sources of alpha across China, Latin America and India, favouring globally competitive industrial companies, cash-generative consumer businesses, financials, utilities and selected domestic growth opportunities. In Latin America, we increased our exposure to Peruvian bank Credicorp while maintaining positions in Brazilian utilities, where a more fiscally orthodox outcome around the electoral cycle could provide a supportive backdrop for domestic assets.

Hard-currency sovereign debt remains our highest-conviction fixed-income allocation, supported by attractive carry and a relatively contained default outlook. While investment-grade spreads remain tight, we continue to see compelling opportunities in high yield and special situations, notably in Côte d’Ivoire and Argentina.

Within local-currency debt, we reduced our overall exposure, particularly in markets more vulnerable to higher energy prices, including South Africa and parts of Eastern Europe. Nevertheless, we continue to identify selective opportunities where valuations and domestic dynamics remain supportive, including Brazil, where greater fiscal orthodoxy could benefit local assets, as well as Kazakhstan and the Dominican Republic, where we see attractive valuations and favourable country-specific catalysts.

On currencies, we remain constructive on emerging market currencies versus the US dollar, supported by attractive carry, valuations and solid fundamentals. We maintain exposure to commodity-linked currencies such as the Kazakh tenge and the Brazilian real, which could also benefit from a more supportive political backdrop. We remain positive on the Mexican peso, supported by contained inflation, a strong trade balance and growing electronics exports linked to the AI investment cycle, while we also favour the Chinese renminbi given its attractive valuation, lower sensitivity to global risk factors and potential for gradual appreciation. We also retain selected exposure to Asian currencies, including the South Korean won and Taiwan dollar, supported by the strength of the regional technology cycle.

Finally, while our medium-term outlook remains constructive, we continue to manage the portfolio’s overall risk profile carefully. We maintain credit protection through high-yield CDS indices and selected sovereign CDS, complementing our duration hedges and providing protection against a potential further deterioration in global risk sentiment.