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Carmignac Portfolio Grandchildren: Letter from the Fund Managers

Author(s)
Mark DENHAM,Obe EJIKEME
Published on
11 October 2023
-3.6%
Performance of Carmignac Portfolio Grandchildren A EUR Acc1
over the third quarter of 2023 vs. -0.5% for the reference indicator2
+15.9%
Year-to-Date performance of Carmignac Portfolio Grandchildren vs. +12.0% for the reference indicator
1st
Carmignac Portfolio Grandchildren
is ranked 1st quartile over 1 and 3 years period for its Cumulative return within its Morningstar Category3

During the third quarter of 2023, the total return of Carmignac Portfolio Grandchildren (A share class) was -3.6%. This compares to a return on the funds reference indicator of -0.5% over the same period.

Market environment

The market environment was dominated by ever rising bond yields everywhere, despite inflation steadily falling in most regions. The message from policy makers was unhelpful with, for instance, the Federal Reserve confirming that interest rates will stay “higher for longer” and the policy rate is likely to remain above 5% for the whole of next year, 2024. This was a more hawkish prediction than most market participants hoped for. This dynamic and messaging created a short-term headwind for our portfolio where relatively highly rated names especially in the Technology/Medtech and Life Science sector, despite their quality, have lagged markets generally in the period. In addition, the financial sector is seen as benefiting from higher rates and was relatively strong during the period. Also, as oil prices rose from 75$ to 95$ a barrel, the Energy sector outperformed. Neither energy nor financial stocks meet our demanding criteria of quality and sustainability, and so we have no exposure to these sectors. We maintain the long term focus we have for Carmignac Grandchildren fund, and a focus on high quality stocks, and we have made no changes to the investment process. In fact, we believe as economic growth and profit growth forecasts are likely to weaken into 2024, the relative visibility of our quality names should stand them in good stead in the coming months.

Performance commentary

For the most part company results for our holdings over last 3 months have been fine – especially during the second quarter reporting season, as you would expect for the quality companies that we focus on. However, in August and September we had a small number of either disappointing results or corporate announcements which led to some dramatic and high-profile movements in stock prices, as well as some positive surprises too. Of course, from time to time this happens, but it is highly unusual to have so many such events in a short period of time.

Adyen, the electronic payments processor reported a disappointing level of growth in their first half results – “only” growing 19% when expectations were higher. More worryingly they referred to high level of competition on price for digital payments especially among large e-commerce clients. This resulted in a 40% stock price drop and further falls afterwards. Thankfully we had already sold most of our holding before this, after a strong performance earlier in the year, and we only had a holding size below 1% on the day – but we saw the news as thesis changing and we sold out completely afterwards.

More significant was Orsted which was a 2% holding in the fund. The wind farm developer which for a long time has had ongoing supply chain issues hindering profitability, especially among recently awarded US contracts, announced a surprise set of write downs and profit warnings. This was a surprise as a Capital Markets Day (CMD) with investors a few weeks earlier had presented a more optimistic picture, and we thought had drawn a line under the issues. Clearly things have deteriorated faster than we or even the management thought. The stock fell dramatically -25% reflecting the surprise. Again, owing to a deterioration in the thesis we sold out of our holding.

A little less dramatic but still a setback was the reaction to Oracle’s quarterly results in early September. The numbers were fine but guidance into the next quarter was a little disappointing. This is a name buoyed by artificial intelligence (AI) enthusiasm and expectations were very high, with the stock having risen 60% year to date at that point, so the name was vulnerable to a pullback, which we saw, of c12%. Nonetheless we retained our position in the company. 80% of its revenues currently are high visibility subscription revenues growing high single digit p.a. plus its datacentre business, OCI, is best placed to benefit for demand for AI applications – and bookings there are extremely strong. In passing, we retain high conviction among several names exposed to the AI theme: Microsoft where we will soon get more tangible visibility of the AI opportunity with the launch of their O365 co-pilot. As well as semiconductor chip maker Nvidia, Oracle, and to a lesser degree publishing software company Adobe.

Finally, life science co Lonza fell 15% after announcing they had parted company with their CEO. The name has been struggling with several operational issues dragging on for longer than expected. It may be these issues continue for a little while longer, but we retain our position in the name. Their core business, which accounts for about two thirds of profits, namely manufacturing biologic drugs, remains a good one and is set to drive low teens growth for many years, and we expect medium term guidance at a forthcoming CMD to underline that. Also even factoring in near term lower growth the stock price is undervaluing the medium-term opportunity dramatically.

It has not been all bad news though. Novo Nordisk continues to perform exceptionally well, and it rose 20% in the period helped by a clinical trial read out confirming a better than expected 20% reduction in cardiovascular risk for patients on weight loss drug Wegovy. This should lead to higher and accelerated demand for the drug as well as increasing insurance coverage of the product. We maintain more than 15% exposure of the fund to the theme of treating obesity through Novo and US firm Eli Lilly.

Portfolio Adjustments

Trading in the quarter was modest overall. Our focus remains on identifying and owning the profitable companies with high return on capital companies we believe have the best prospects for a 5 year or longer time horizon and holding stocks over this time.

1Performance of the A EUR acc share class ISIN code: LU1966631001.

2Reference indicator: MSCI World Index (Reinvested net dividends).

3Source: Morningstar as of 29/09/2023.

Carmignac Portfolio Grandchildren

A global, high-conviction equity fund for long-term investors
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Carmignac Portfolio Grandchildren A EUR Acc

ISIN: LU1966631001
Recommended minimum investment horizon
5 years
Risk indicator*
4/7
SFDR - Fund Classification**
Article 9

*Risk Scale from the KID (Key Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time. **Sustainable Finance Disclosure Regulation (SFDR) 2019/2088. The SFDR classification of the Funds may change over time.

Main risks of the fund

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.
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.
Discretionary Management: Anticipations of financial market changes made by the Management Company have a direct effect on the Fund's performance, which depends on the stocks selected.
The Fund presents a risk of loss of capital. Please refer to the Fund’s prospectus to view the exhaustive list of risks.

Fees

ISIN: LU1966631001
Entry costs
4.00% of the amount 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
1.71% of the value of your investment per year. 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
0.30% of the value of your investment per year. 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

ISIN: LU1966631001
Carmignac Portfolio Grandchildren+9.1−5.1+21.9+23.0−24.2+28.4+20.3+15.5
Reference Indicator+16.7+6.8+26.6+19.6−12.8+31.1+6.3+15.5
Carmignac Portfolio Grandchildren+11.1%+3.8%+10.5%
Reference Indicator+20.1%+11.3%+14.0%

Source: Carmignac at 30 Oct 2026.
Date of 1st NAV : 31/05/2019.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor). The Fund presents a risk of loss of capital.
The return may increase or decrease as a result of currency fluctuations, for the shares which are not currency-hedged.

Reference Indicator: MSCI World NR index

Share

Marketing communication. Please refer to the KID/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 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. The subscriber must read the KID. Investors may lose some or all their capital, as the capital in the funds are not guaranteed. The Funds present a risk of loss of capital.

The Funds’ prospectus, KIDs, NAVs and annual reports are available at www.carmignac.com/en, 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.

  • In the United Kingdom: the Funds’ respective prospectuses, KIIDs and annual reports are available at www.carmignac.com/en-gb, or upon request to the Management Company, or for the French Funds, at the offices of the acilities Agent, Carmignac UK Ltd, 2 Carlton House Terrace, London, SW1Y 5AF. This document was prepared by Carmignac Gestion, Carmignac Gestion Luxembourg or Carmignac UK Ltd. 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 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: Hamilton Centre, Rodney Way, Chelmsford, Essex, CM1 3BY, UK; Registered in England and Wales with number 4162989. Carmignac Gestion Luxembourg SA has been appointed as the Investment Manager and distributor in respect of the Company. Carmignac UK Ltd (Registered in England and Wales with number 14162894) has been appointed as a sub-Investment Manager of the Company and is authorised and regulated by the Financial Conduct Authority with FRN:984288.

  • In Switzerland: the prospectus, KIDs and annual report are available at www.carmignac.com/en-ch, or through our representative in Switzerland, CACEIS (Switzerland), S.A., Route de Signy 35, CH-1260 Nyon. The paying agent is CACEIS Bank, Montrouge, Nyon Branch / Switzerland, Route de Signy 35, 1260 Nyon.

  • In Belgium: This document is intended for professional clients. This content has not been validated by FSMA. The decision to invest in the promoted fund should take into account all its characteristics or objectives as described in its prospectus. This communication is published by Carmignac Gestion S.A., a portfolio management company approved by the Autorité des Marchés Financiers (AMF) in France, and its Luxembourg subsidiary Carmignac Gestion Luxembourg, S.A., an investment fund management company approved by the Commission de Surveillance du Secteur Financier (CSSF). “Carmignac” is a registered trademark. “Investing in your Interest” is a slogan associated with the Carmignac trademark. This document does not constitute advice on any investment or arbitrage of transferable securities or any other asset management or investment product or service. The information and opinions contained in this document do not take into account investors’ specific individual circumstances and must never be interpreted as legal, tax or investment advice. The information contained in this document may be partial and could be changed without notice. This document may not be reproduced in whole or in part without prior authorisation. The risks and fees are described in the KID (Key Information Document). The prospectus, KID, the net asset-values and the latest (semi-) annual management report may be obtained, free of charge, in French or in Dutch, from the management company (tel. +352 46 70 60 1) or by consulting its website or www.fundinfo.com. These materials may also be obtained from Caceis Belgium S.A., the financial service provider in Belgium, at the following address: avenue du port, 86c b320, B-1000 Brussels. The Fund (fonds commun de placement or FCP) is a common fund in contractual form conforming to the UCITS Directive under French law. Access to the Fund may be subject to restrictions regarding certain persons or countries. 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. In case of subscription to a fund subject to Article 19bis of the Belgian Income Tax Code (CIR92), the investor will have to pay, upon redemption of his or her shares, a withholding tax of 30% on the income (in the form of interest, or capital gains or losses) derived from the return on assets invested in debt claims. Distributions are subject to withholding tax of 30% without income distinction. In case of subscription in a French investment fund (fonds commun de placement or FCP), you must declare on tax form, each year, the share of the dividends (and interest, if applicable) received by the Fund. Any complaint may be referred to complaints@carmignac.com or CARMIGNAC GESTION - Compliance and Internal Controls - 24 place Vendôme Paris France or on the website www.ombudsfin.be.

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For Carmignac Portfolio Long-Short European Equities: Carmignac Gestion Luxembourg SA in its capacity as the Management Company for Carmignac Portfolio, has delegated the investment management of this Sub-Fund to White Creek Capital LLP (Registered in England and Wales with number OCC447169) from 2nd May 2024. White Creek Capital LLP is authorised and regulated by the Financial Conduct Authority with FRN : 998349.

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.