Carmignac P. Flexible Bond: Letter from the Fund Managers - Q4 2025
In the fourth quarter of 2025, Carmignac Portfolio Flexible Bond posted a net performance of -0.28% for the A share class, while its reference indicator1 was up +0.21%.
The bond markets today
The last quarter of 2025 began unusually as the American administration was shut down from October 1st due to the failure of the Congress to vote on the federal budget. This "shutdown" significantly complicated market analysis due to the lack of employment and inflation statistics for 43 days. Despite this data shortfall, the Federal Reserve (the “Fed”) continued its rate-cutting cycle, implementing two additional cuts on top of the one already anticipated by the market in the previous quarter. However, after the government reopened following a concession by Democratic senators, the market remained perplexed by the strong statistics, with Q3 GDP growth at +4.3% and a resilient job market despite a wave of government layoffs. Hence, the yield curve steepened during the quarter, with short rates decreasing by -14 basis points, reflecting a Fed that remained accommodating, while long rates increased by +2 basis points due to favourable economic momentum.
On the Old Continent, the European Central Bank (“ECB”) opted for a pause in its monetary cycle, given rising growth and stable inflation above the ECB’s target. In anticipation of strengthened bond supply in the upcoming months, long rates accelerated during the observation period, as exemplified by the 10-year German rate, which increased by +17 basis points. At the opposite end of the globe, Japanese rates experienced a vigorous acceleration following the announcement of a $136 billion stimulus plan by new Prime Minister Sanae Takaichi, pushing the 10-year Japanese rate up by +42 basis points over the quarter. Consequently, the Bank of Japan decided to raise its benchmark rate during its December meeting to 0.75%, the highest level since 1995.
Finally, on the corporate debt front, investors maintained a strong appetite for risk, illustrated by a further tightening of credit spreads by -18 basis points on the Itraxx Xover index during the quarter.
Asset allocation
Carmignac P. Flexible Bond recorded a negative performance both on an absolute and relative basis during this quarter, posting a performance of -0.28% for the A EUR Acc share class against +0.21% for its reference in indicator. Our inflation-linked strategies and credit index hedges were the main detractors of performance during the period, in an environment marked by the American administration shutdown, depriving investors of benchmarks on inflation resilience, and a persistently strong risk appetite that contributed to the tightening of credit spreads.
Conversely, our allocation to emerging sovereign bonds and a selection of credit issuers in high yield and financial subordinated segments contributed positively to fund performance. Lastly, our prudent management of fund rate sensitivity, within a range of -2.0; -0.6 during the quarter, enabled the fund to navigate divergent rate market trajectories, particularly in December.
We fully utilized the flexibility offered by our management mandate to adapt the portfolio to a changing environment. Thus, we increased our short position on US rates, particularly on the short-end of the yield curve, while the market continued to show optimism regarding the scope of rate cuts for the coming months. Conversely, we partially took profit on our short position on Japanese rates after the sharp rise in long tails following Sanae Takaichi's election as Prime Minister.
On the credit front, we partially crystallized the gains accumulated over recent months in the financial subordinated segment while increasing our exposure to high yield credit default swaps. Finally, we increased our exposure to US inflation swaps given the market's low expectations for the upcoming months on consumer price indices.
By the end of the period, the fund's rate sensitivity stood at -0.6, reflecting our prudence concerning the evolution of long-term rates in developed economies such as Japan or the United States. The portfolio shows an embedded yield of 3.4% for an average rating of BBB, reflecting our strong appetite for hybrid instruments and idiosyncratic credit issuer selection, while also maintaining 19% protection on the high yield index to guard against potential valuation shocks due to rising geopolitical tensions.
Outlook
The market seems relatively polarized between a certain optimism regarding growth dynamics in the eurozone and Japan, and persistent pessimism about the trajectory of the United States. We believe the latter is exaggerated and does not account for the triple fiscal, monetary, and investment expenditure stimulus linked to the advent of artificial intelligence, which should maintain US growth and inflation at higher levels than anticipated. Market valuation levels also fail to account for a deteriorating geopolitical climate, which could erode assets that have been highly sought after over the past three years, and drive up commodity prices in the future, generating inflationary pressure. Given this configuration, the market offers numerous opportunities for flexible bond management like ours, capable of capitalizing on trend reversals in each sub-segment of the market and adopting hedging strategies.
Inflation-linked instruments remain one of the most attractive sub-segments in the bond market, while other corporate and government bonds show limited potential for further compression. With 20% of the portfolio invested in inflation-linked bonds and over 300 basis points of duration invested in inflation swaps, Carmignac Portfolio Flexible Bond is well-positioned to benefit from sustained or persistent inflation. Additionally, while conventional bond strategies generally suffer during inflation resurgence episodes due to consecutive adjustments in yield curves, our flexible fund allows us to adopt a neutral or negative sensitivity through derivative instruments, to exploit a rising rate context.
This flexibility enables us to maintain a cautious overall allocation with a significant weighting in money market assets, while also leveraging hedging strategies to profit from potential future market dislocations.
Carmignac Portfolio Flexible Bond
Carmignac Portfolio Flexible Bond A EUR Acc
- 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
Fees
- Entry costs
- 1.00% One-time cost 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
- 1.22% 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
- 0.35% 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.
Performance
| Carmignac Portfolio Flexible Bond | 0.1 | 1.7 | -3.4 | 5.0 | 9.2 | 0.0 | -8.0 | 4.7 | 5.4 | 4.3 |
| Reference Indicator | -0.3 | -0.4 | -0.4 | -2.5 | 4.0 | -2.8 | -16.9 | 6.8 | 2.6 | 1.3 |
| Carmignac Portfolio Flexible Bond | + 4.8 % | + 1.2 % | + 1.8 % |
| Reference Indicator | + 3.5 % | - 2.2 % | - 1.0 % |
Source: Carmignac at 31 Dec 2025.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).
Reference Indicator: ICE BofA Euro Broad Market index
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