Carmignac P. Credit: Letter from the Fund Managers - Q2 2025
Carmignac Portfolio Credit was up 1.92% during the second quarter of 2025 versus 1.79% for the reference indicator, for an outperformance of +0.13%. On a year to date basis, the fund was up 3.85% while its reference indicator performed +2.07% which represents an outperformance of +1.78%.
Review of Q2 2025 performance
Credit markets experienced volatility in the second quarter, first linked to the fear of heavy trade disruptions, then to the unfolding of the conflict in the Middle East. So far, the market stress has largely subsided as the actual reality of trade impediments now appears manageable for most companies and the conflict has stabilized. High yield spreads in Europe ended the quarter tighter than they started it. The primary market closed for a couple of weeks but reopened promptly after that and no backlog of issuance has built.
The portfolio performed well during this period. Our natural resources portfolio in particular is behaving well operationally despite lower energy prices, thanks to our focus on selecting issuers with low oil price breakeven economics and balance sheets able to weather the cycle. We sold approximately one third of our hedges through CDS on high yield indices as the cost of protection started to rise and have since bought back most of this protection at much lower levels.
Despite the relatively tight level of market indices, we find credit markets still conducive for bond picking and alpha generation. Although spreads and volatility have climbed down, investors remain alert to the potential of political disruption and this helps keeping complexity premia at healthy levels. Companies are anxious to execute their financing plans, leading to a strong supply side on the primary market and healthy issuance premia.
We made a number of interesting new investments with attractive risk rewards during the quarter. To offer a concrete example, we had the opportunity to deploy capital in the debut bond issuance of one of the largest European defense companies. This company had debut ratings at BB+ despite already sporting what we consider to be investment grade metrics as well as an excellent business position. It paid a meaningful premium above the average spread of BB issuers to issue its EUR 1b and $1B bonds maturing in 5 years and it will likely be upgraded to investment grade in the next 24 months. Our base case is refinancing at the end of the non-call period of 2 years, with a return in EUR in excess of 6.5% over this period, meaningfully overcompensating a modest fundamental risk.
The portfolio remains very well diversified, with more than 250 bonds from more than 150 issuers. We always stress-test our investment theses for risky dependences to unreliable markets on the demand or supply side, as well as the capacity to absorb input cost volatility and we feel confident about the ability for the portfolio to weather this environment of heightened trade and political uncertainty. The high level of diversification of the fund should mitigate the impact of potential accidents. We also believe headlines, overreactions and volatility are likely to be a big source of opportunities. This quarter proved once again that keeping some hedges when the markets are tight is invaluable in giving us precious dry powder to reposition the fund through periods of market volatility. Hence, we maintain a c. (19)% hedging positions through CDS on high-yield indices.
We have been investing constantly in the natural resources sector over the past decade, generating alpha regularly. The ability to withstand commodity price volatility is a key criteria selection for our positions in this corner of the economy. The financial institutions we invest in combine healthy liquidity and capitalization as well as disciplined underwriting and should withstand a recession without major issues. Finally, our CLO exposure stands at c. 8.6%. We have actively selected CLO tranches with more defensive risk characteristics, namely instruments with shorter spread duration and/or high coupons, and our exposure is well diversified across over 45 tranches.
Outlook
The portfolio currently yields 6.19% for an average BBB- rating. Including the cost of hedging, the net yield is in excess of c.5.5% with an average robust investment grade rating. We think this is an attractive level of carry that should ensure solid outcomes within our investment horizon in a wide range of market scenarios. If the current turbulence turns into a dislocation, the carry should mitigate to a great extent a repricing of the portfolio with a 12 months horizon, giving us leeway to reposition. Conversely, in a stable to tightening market, one could easily envision a mid to high single digit return.
Finally, we expect restructurings to be an incremental source of alpha in tough markets making refinancings more difficult. Companies that overlevered during the decade of very low cost of capital preceding 2022 are increasingly having to resize and restructure their balance sheets. This has started already in 2024, with a number of companies managing to take semi-consensual routes to liability management exercises. The biggest contributor to performance was an investment in a restructuring situation in the healthcare industry which was a detractor to performance in 2024. Our investment thesis is starting to play out and we expect further performance during 2025. We expect 2025 to see more proper restructurings as it is becoming more and more difficult for a number of companies to kick the can down the road and we can think of a number of large balance sheets where investors are likely too complacent about the magnitude of adjustments needed to get to sustainable quanta of debt. This should provide us with asymmetric opportunities to generate meaningful alpha, as distressed debt can be one of the most attractive sectors of the credit world at the right moments of the cycle.
In conclusion, we think our selective bond picking, high level of diversification and prudent positioning should help us weather rough credit markets and put us in the position to seize on the resulting opportunities.
Carmignac Portfolio Credit
Carmignac Portfolio Credit F EUR Acc
- Recommended minimum investment horizon
- 3 years
- Risk indicator*
- 2/7
- SFDR - Fund Classification**
- Article 6
* **
Main risks of the fund
Fees
- Entry costs
- Exit costs
- Management fees and other administrative or operating costs
- 0.80%
- Performance fees
- 20.00%
- Transaction Cost
- 0.23%
Performance
| Carmignac Portfolio Credit | +3.8 | +8.6 | +10.9 | −12.7 | +3.4 | +10.8 | +20.9 |
| Reference Indicator | +2.1 | +5.7 | +9.0 | −13.3 | +0.1 | +2.8 | +7.5 |
| Carmignac Portfolio Credit | +8.5% | +4.5% | +6.6% |
| Reference Indicator | +5.4% | +1.4% | +1.9% |
Source: Carmignac at Jun 30, 2025.
Date of 1st NAV : 31/12/2018.
Reference Indicator: 75% ICE BofA Euro Corporate index + 25% ICE BofA Euro High Yield index. Quarterly rebalanced.
This document is issued by, or communicated on behalf of, Carmignac Middle East Ltd, a company incorporated under the laws of the Dubai International Financial Centre with company number CL 13413 registered at GD-PB-04-01-OF-01-0, Level 1, DIFC Fund Centre, Level POD, Gate District Precinct Building 04, Dubai International Financial Centre, Dubai, United Arab Emirates and regulated by the Dubai Financial Services Authority under reference number F013638.
This document is intended solely for Professional Clients and Market Counterparties, as defined under the applicable rules of the Dubai Financial Services Authority (“DFSA”). It must not be relied upon by, or distributed to, Retail Clients or any other person.
The fund(s) referred to in this document are foreign fund(s) domiciled and regulated in Luxembourg by the Commission de Surveillance du Secteur Financier (“CSSF”). Carmignac Portfolio refers to the sub-funds of Carmignac Portfolio SICAV, an investment company under Luxembourg law, conforming to the UCITS Directive. Carmignac Private Evergreen refers to the Private Evergreen sub-fund of the SICAV Carmignac S.A. SICAV – PART II UCI, registered with the Luxembourg RCS under number B285278. Unless expressly stated otherwise, they are not domiciled in, authorised by, or subject to regulation or approval by the DFSA. The DFSA has not approved, reviewed or verified this document, the prospectus or any other fund documentation, and the authority does not accept responsibility for the information contained in them or for the merits of an investment in the fund(s).
This document is provided for information purposes only. It does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any financial instrument or fund interest. Any investment decision should be made solely on the basis of the applicable legal offering documents, including the prospectus and, where applicable, the key information document, and after obtaining independent professional advice as appropriate. 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.
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. Prospective investors should read the fund's prospectus/KID and consult their own advisers before making any investment decision. Investors may lose some or all their capital, as the capital in the funds is not guaranteed.
Investment in the fund(s) involves risk, including possible loss of capital. The value of investments and income may go down as well as up, and investors may not recover the amount originally invested. Past performance is not a reliable indicator of future results. 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. Any target, forecast, projection or forward-looking statement is based on assumptions and is not a guarantee of future performance or return.
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 UCITS 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.
Funds classified as Article [8/9] products under the EU Sustainable Finance Disclosure Regulation (“SFDR”) are subject to an EU classification only, and does not represent a label, approval or endorsement by the Dubai Financial Services Authority or any UAE authority. Funds that pursue ESG related objectives alongside financial objectives do so without any guarantee that such ESG objectives will be achieved. ESG data and indicators may be based on third party sources, estimates and evolving methodologies and should not be viewed as a precise or comprehensive measure of sustainability performance.
The fund(s) may be subject to investment, market, liquidity, currency, credit, counterparty, concentration and other risks as described in the applicable offering documents. Prospective investors should conduct their own due diligence and carefully consider the risks, investment objectives, costs and suitability of an investment before making any decision.
The Management Company can cease promotion in your country anytime. Investors have access to a summary of their rights at section 5 entitled "summary of investor rights" at the following link: https://www.carmignac.com/en-ae/regulatory-information