Carmignac Portfolio Grandchildren: Letter from the Fund Managers - Q3 2025

Carmignac Portfolio Grandchildren A EUR Acc delivered a performance of -0.56% in the third quarter of 2025, underperforming its reference indicator, which had a performance of +7.17%.

In the third quarter of 2025 global developed stock markets delivered a strong return of 7.2%² as investor sentiment improved significantly, with returns clearly led by technology names most affected by the AI theme. Markets were also supported by increased expectations of near-term easing of rates, especially by the Fed in the US, underpinning valuations. Of course periodic concerns around valuation, the US administration’s policies, and external shocks meant occasional volatility.

European equities also delivered positive performance, albeit more modest, returns compared with the U.S., as the region continued to grapple with subdued economic growth and political uncertainty. The eventual agreement of a 15% tariff between the EU and US on most goods was received well, as was the news later in the quarter that as long as pharmaceutical companies had committed to build manufacturing in the US, they would be exempt from specific tariffs.

During the third quarter of 2025, the fund underperformed its reference indicator. The strongest contributions came from the Information Technology and Communication Services sectors, with several holdings delivering substantial gains notably Alphabet (+38%), Oracle (+29%), and ASML (+22%). These sectors continued to benefit from robust demand related to artificial intelligence (AI) infrastructure and digital transformation themes.

The Industrials sector also benefited from AI-driven themes, particularly through increased investment in electrification and grid modernisation. We have recently increased our exposure to this area, with a focus on companies positioned to capitalize on these structural shifts. Cable manufacturer Prysmian was a notable contributor, reflecting robust demand for high-voltage transmission cables as Western economies accelerate efforts to address years of underinvestment in electrical infrastructure. Prysmian’s dominant transmission division expanded year-on-year, supported by a record order backlog exceeding five years of production providing strong revenue visibility and earnings resilience for the medium term.

Conversely, as investor sentiment improved and risk appetite rose, traditionally defensive sectors such as Utilities, Consumer Staples, and Healthcare underperformed. The fund’s significant exposure to Consumer Staples and Healthcare consequently detracted from relative performance, with several key holdings, including Vertex, Intuitive Surgical, and Alcon, declining between 10% and 20% over the quarter.

Within Healthcare, sentiment was further undermined by renewed policy concerns under the Trump administration, particularly regarding potential drug price controls and incentives to repatriate pharmaceutical manufacturing to the U.S. via sector-wide tariffs.

Novo Nordisk was a notable detractor, falling 22% over the quarter amid multiple headwinds. Prescription growth for its obesity treatment Wegovy fell short of expectations as the company lost market share to Eli Lilly, compounded by the temporary proliferation of illegal compounders producing copycat GLP-1 drugs prior to recent regulatory crackdowns. These pressures, along with execution challenges, led to a CEO change and a downward revision of full-year guidance in July, events that triggered a further share price fall. Despite these near-term challenges, we have maintained our position. At approximately 14x 2025 rebased earnings, Novo Nordisk now trades at a discount of around two multiple points to the broader market while remaining part of a two-player global duopoly addressing the structurally expanding markets of diabetes and obesity. While valuation appears attractive, we prefer to see evidence of sustained prescription growth and operational improvement before considering an increase in our position, which we continue to monitor closely on a weekly basis.

Consumer staples names such as Colgate and Procter & Gamble fell 11% and 3% respectively as investors preferred other areas of the market, as well as concern that sales estimates for second half of the year may need reducing on subdued consumer demand. We believe any such reduction is likely modest and more than reflected in stock price falls and so we have reinforced our holdings in these names.

Over recent months, we have grown increasingly cautious on cyclical areas of the market, particularly Financials, Technology, and more recently Industrials. Several of our industrial holdings, including Schneider Electric and Prysmian, have shown rising correlation with the strong momentum in AI-related technology stocks, given their exposure to data centre expansion and electrification themes. Following a period of strong performance, we took some profits in Prysmian and exited our position in U.S. company, Comfort Systems.

Within Technology, we continue to hold high conviction in our core positions Microsoft, Nvidia, and Amazon which we believe remain well placed to benefit from the ongoing AI-driven transformation of global enterprise and consumer ecosystems. Microsoft remains our largest holding, and we were encouraged by its strong fiscal third-quarter results released in August. Overall revenue grew 18% year-on-year, while profits rose more than 20%. Notably, Azure reported accelerating growth of 39%, underscoring the strength of our investment thesis centred on cloud computing and AI integration. Although the share price was broadly flat during the quarter, we view this as a temporary pause within a structurally favourable trajectory, given the company’s exceptional fundamentals.

We exited our position in Oracle after the company reported a strong uplift in bookings for its emerging hyperscaler platform, locking in a 17% gain for the fund during the quarter.

Given our concerns about potential policy headwinds for the Healthcare sector under the Trump administration, particularly regarding drug pricing reform and supply chain reshoring we reduced exposure to the sector. This included the gradual reduction and eventual sale of our positions in Stryker and Intuitive Surgical, both of which had represented meaningful weightings. We redeployed the cash to initiate a new position in Spotify as well as DSV which is one of the top global freights forwarders. DSV further cemented its top-tier status by completing the acquisition of Schenker in the first half of the year, creating the largest global logistics player.

In this environment, we continue to prioritise high-quality, secular growth companies with resilient earnings and strong revenue visibility. We believe these businesses are best equipped to navigate uncertainty while delivering compelling long-term returns.