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Carmignac P. Credit: Letter from the Fund Managers

Author(s)
Alexandre DENEUVILLE,Pierre VERLÉ
Published on
October 11, 2024
Read time
3 minute(s) read
+2.48%
Carmignac P. Credit’s performance in Q3 2024 for the A EUR Share class.
+7.44%
Carmignac P. Credit’s performance YTD for the A EUR Share class, compared to +4.55% for its reference indicator1.
+5.52%
Of annualized performance since launch of the fund (31/07/2017)2, compared to +1.15% for its reference indicator1.

Carmignac Portfolio Credit was up 2.48% (for the EUR A share) during the third quarter of 2024 versus 3.33% for the reference indicator, underperforming by -0.85%. Since the beginning of the year, the fund is up 7.44% versus 4.55% for the reference indicator, outperforming by 2.89%.

Review of Q3 2024 performance

All the performance drivers of the strategy have been contributing meaningfully to the fund’s return so far in 2024. The main detractor was a distressed debt position that has suffered from a combination of negative short-term news and poor technicals. Most of that negative contribution happened during the third quarter, resulting in the fund's relative underperformance during that period. We remain comfortable with the investment thesis for this position and know, from experience, that restructuring investments need time to be fruitful. Already the newsflow about this issuer is improving and the management team is adopting a proactive financial communications strategy.
As we look forward toward the next quarters, we remain excited about the potential for the fund’s performance. Credit markets, benefiting from strong technical and macro factors, are overall richly valued – although not quite at the peak valuations observed during the past decade – yet dispersion is elevated and we see many pockets of value.
In the financial sector, we find many investments offering a healthy spread premium, compared to general market valuations, at equivalent fundamental risk. This is a funding intensive industry by nature while many investors are still seared by memories of the Great Financial Crisis and of more recent idiosyncratic incidents (such as the Credit Suisse and Silicon Valley Bank episodes) and hence defiant. This creates an imbalance between the demand and supply of capital that needs to be resolved by higher spreads. Nonetheless, the sector as a whole is in robust shape, after more than 15 years of capital accumulation and conservative regulation, and these premiums are in some cases very attractive.
The structured credit universe offers a similarly exciting combination of unjustified taint and extremely robust fundamentals resulting in attractive risk rewards that we capture in our investments in CLO tranches. The weight of CLO tranches in the fund has decreased as positions have been refinanced while we didn’t participate in many of the new structures. Towards the end of the quarter, as the quality of documentations improved, we made a few promising investments. Interestingly, in a marked change to recent years, we have started to perceive better value (after the cost of currency hedging) in some USD tranches.
Natural resources is also an opportunity-rich sector as it combines capital intensity and limited marginal appetite from many debt investors that implement too strict responsible investment strategies. There again, we find a number of investments that remunerate us much in excess of the cost of risk implied by their strong fundamentals.
The primary market has been extremely dynamic in the past quarters, with new issuers regularly making their debut on the bond market. Roadshows are typically short and good companies are frequently mis-assessed and come to market with attractive yields. We have made a number of well-timed investments in this fashion since the beginning of the year and the icing on the cake is that we can build sizeable positions with no transaction costs.
Last but certainly not least, companies that overlevered before 2022 in the context of low financing costs are facing increasing difficulties to service their debts in a world where the cost of capital has normalized. The default rate has thus been picking up. So far the availability of abundant private capital and the implementation of semi-consensual liability management schemes have dampened the impact of this regime change but we believe the frequency and severity of defaults is about to pick up. This will likely be a great source of asymmetric opportunities over the next couple of years.

Outlook

In summary, we are very excited for the potential future returns and would be disappointed if Carmignac Portfolio Credit does not offer a mid-to-high single digit compounded return in the next two to three years. At the end of September the portfolio is yielding c.6.6% for a BB+ average rating, and accounting for our 21%+ hedging position through CDX high yield and Xover, the yield is close to 6% for an average BBB- rating. In addition, we have several special situations in the book where we see strong upside potential. Given the depth of the opportunity set across our investment universe, we are keeping the fund very diversified, with more than 250 positions and 150 issuers, and hence very liquid.

Sources: Carmignac, 30/09/2024. Performance of the A EUR acc share class ISIN code: LU1623762843.
1Reference indicator: 75% BofA Merrill Lynch Euro Corporate Index, 25% BofA Merrill Lynch Euro High Yield Index. 231/07/2017. Past performance is not necessarily indicative of future performance. The return may increase or decrease as a result of currency fluctuations. Performances are net of fees (excluding possible entrance fees charged by the distributor). Marketing communication. Please refer to the KID/prospectus of the fund before making any final investment decisions.

Carmignac Portfolio Credit

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Carmignac Portfolio Credit A EUR Acc

ISIN: LU1623762843
Recommended minimum investment horizon
3 years
Risk indicator*
2/7
SFDR - Fund Classification**
Article 6

*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

Credit: Credit risk is the risk that the issuer may default.
Interest Rate: Interest rate risk results in a decline in the net asset value in the event of changes in interest rates.
Liquidity: Temporary market distortions may have an impact on the pricing conditions under which the Fund might be caused to liquidate, initiate or modify its positions.
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: LU1623762843
Entry costs
2,00 % 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
1,20 % 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
0,23 % 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: LU1623762843
Carmignac Portfolio Credit−1,5+6,7+8,2+10,6−13,0+3,0+10,4+20,9+1,7+1,8
Reference Indicator−0,6+3,6+5,7+9,0−13,3+0,1+2,8+7,5−1,7+1,1
Carmignac Portfolio Credit+6,4 %+1,8 %+4,9 %
Reference Indicator+4,6 %+0,6 %+1,3 %

Source: Carmignac at Oct 30, 2026.
Date of 1st NAV : 31/07/2017.
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: 75% ICE BofA Euro Corporate Index + 25% ICE BofA Euro High Yield index. Rebalancing Frequency: Quarterly

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.

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.

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. 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.

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" on the following links: UK ; Switzerland ; France ; Luxembourg ; Sweden. Belgium (French) ; Belgium (Dutch)

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.