In a highly volatile environment, the credit asset class has benefited from its defensive features to post a clearly positive performance, unlike other assets such as international equities. With central banks having begun their cycle of rate cuts and credit spreads having tightened over the past 24 months, what can we expect from this asset class going forward?
An elevated yield despite tighter credit spreads
- Corporate bonds have seen a substantial increase in yields since the inflation shock of 2022, revitalizing an asset class that had lost momentum over the previous decade.
- While yields have normalized somewhat over the past 24 months as credit spreads have tightened, current market conditions suggest that they will stabilize at these historically high levels.
- Market valuations appear to integrate generous rate cut expectations for the coming months, while credit spreads are at levels that no longer warrant further tightening.
- We believe that this asset class therefore offers investors an attractive opportunity to build pockets of return in excess of 3% across the investment grade spectrum and 5% in high yield, and even more for actively managed funds such as Carmignac P. Credit (see figure 1), whose annual return since launch is similar to the average performance of European equities over the past 20 years.
Figure 1: Yields on investment grade and high yield indices are gravitating above their historical averages, as are those of offered by Carmignac P. Credit fund
Source: Carmignac, ICE Bank of America, Bloomberg, 30/06/2025. YTW : Yield-to-Worst. Investment Grade Credit: ICE BofAML Euro Corporate; High Yield Credit: ICE BofAML Euro High Yield. Past performance is not a reliable indicator of future returns.
Proven resilience during recent market events
- Credit has earned a prominent place in investor allocations thanks to higher embedded yields, replacing other previously favoured asset classes such as real estate and deposit accounts.
- This new status as an essential building block within an allocation has strengthened the asset class from a technical standpoint, with the abundance of inflows enabling it to better absorb market events, whether microeconomic (issuer default) or macroeconomic (war, political events etc.).
- While we expect default rates to rise, we believe that the market is now in a position to absorb such events without contagion, as demonstrated by the recent major defaults in recent months (Altice, Atos, Ardagh, Intrum, etc.), which had no impact on other components of the indices.
- Since the beginning of the year, credit assets have posted very limited drawdown, unlike other assets during the various market events that have occurred (see figure 2), a trend that we believe should continue given the strength of technical factors.
- Finally, while periods of recession have historically been synonymous with credit underperformance, we believe that this risk is currently low, given the current fiscal stimulus policies on both sides of the Atlantic, but also the leeway available to central bankers to support the economy in the event of a downturn.
Figure 2: The resilience of the credit asset class significantly improved thanks to more favourable technical factors
Source: Carmignac, Bloomberg, MSCI, 30/06/2025. Investment Grade Credit: ICE BofAML Euro Corporate; High Yield Credit: ICE BofAML Euro High Yield; Sovereign debt: Bloomberg Global Aggregate Treasuries Total Return Index Hedged EUR; Global Equities: MSCI World Net Total Return EUR Index.
Dispersion remains high within the asset class
- The fixed income universe is substantially larger than the equity universe. For example, in the United States, there are more than 500,000 bonds for only 8,000 equities on the various US indices1.
- This bulk of supply creates market inefficiencies that offer relevant opportunities for active credit portfolio managers who are able to capture complexity premiums linked to the specific characteristics of certain companies.
- Indeed, many issuers seeking to raise capital on the fixed income market are forced to offer excess yield to compensate for poor market coverage by brokers, analysts and investors.
- This phenomenon is particularly pronounced for companies that issue only one bond on the credit market and are therefore mostly ignored by investors and often absent from indices.
- These inefficient markets thus make it possible to build fixed-income strategies offering higher returns without increasing risk.
Figure 3: Evolution of the yield to maturity of three issues – Shrinking of the issuer complexity premium
Source: Carmignac, Bloomberg, 30/06/2025. Past performance is not necessarily indicative of future performance. The portfolio may be changed without prior notice. References to certain securities or financial instruments are provided for illustrative purposes only, to highlight certain securities that are or have been included in the portfolios of the Carmignac funds. They are not intended to promote direct investment in these instruments and do not constitute investment advice. The Management Company is not subject to any prohibition on trading in these instruments prior to the publication of this communication. The portfolios of Carmignac Funds are subject to change at any time.
Financial bonds at the core of our strategy
- Among the various value cohorts available to corporate bond investors, we believe that the financial sector offers attractive characteristics for generating attractive returns.
- Indeed, this sector, which remains stigmatized since the global financial crisis, offers an attractive risk-adjusted premium and significant depth.
- European banks have worked hard to reduce risk while strengthening their balance sheets to meet regulatory requirements, which has led them to almost triple their capital ratios since 2008, while benefiting from a more virtuous environment that has enabled them to improve their profitability (Figure 4).
- The momentum is also favourable, with industry consolidation on the horizon following a wave of announcements of domestic and cross-border mergers.
- All of these arguments therefore support exploring the entire capital structure of European banks, particularly through subordinated securities, which offer higher yields than high-yield credit for issuers that are generally rated Investment Grade.
Figure 4: European banks have improved their financial strength and profitability over the past decade
Source : European Central Bank, 30/06/2025.
Performance potential remains as strong as ever
- Corporate bond funds are, in our view, more relevant than ever as an alternative for building a diversified allocation.
- In addition to offering proven resilience to various episodes of stress, these assets can provide significantly higher returns than other defensive investment solutions (structured products, sovereign debt, deposit accounts, real estate vehicles).
- Beyond the benefits offered by this potential high recurring return, the abundance of issues on the primary market should continue to provide us with significant alpha generation through the capture of complexity premiums.
- Furthermore, we believe that credit should be included in any asset allocation, as it appears to be the only asset class that combines greater visibility in an uncertain environment with positive real returns.
- Active management funds such as Carmignac Portfolio Credit, which can benefit from the inefficiencies specific to this asset class, display a yield to maturity of 6.2% at the end of June 2025 with an average rating of BBB- and net exposure to high-yield credit accounting for less than a quarter of net assets.
Figure 5: Evolution of the yield to maturity and the performance of Carmignac Portfolio Credit A EUR Acc since inception (31/07/2017)
Source: Carmignac, 30/06/2025. Benchmark: 75% of the ICE BofAML Euro Corporate Index (ER00) and 25% of the ICE BofAML Euro High Yield Index calculated with coupons reinvested and rebalanced quarterly.
A EUR Acc ISIN: LU1623762843. Performance is net of fees (excluding any entry fees charged by the distributor). Past performance is not necessarily indicative of future performance.
A EUR Acc ISIN: LU1623762843. Performance is net of fees (excluding any entry fees charged by the distributor). Past performance is not necessarily indicative of future performance.
1Source: Bloomberg, ICE Bank of America, World federation of exchanges, SIFMA as of 30/06/2025.
Carmignac Portfolio Credit
Access the entire credit spectrum for maximum flexibility
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 | +3,7 | +8,2 | +10,6 | −13,0 | +3,0 | +10,4 | +20,9 | +1,7 | +1,8 |
| Reference Indicator | +2,1 | +5,7 | +9,0 | −13,3 | +0,1 | +2,8 | +7,5 | −1,7 | +1,1 |
| Carmignac Portfolio Credit | +8,2 % | +4,1 % | +5,6 % |
| Reference Indicator | +5,4 % | +1,4 % | +1,4 % |
Source: Carmignac at Jun 30, 2025.
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