The hunt for quality growth in the financials sector has long been a slog for those wanting to limit their sensitivity to the economic cycle, but beyond the traditional banking sector, opportunities are out there. Mark Denham, manager of the Carmignac Portfolio Grande Europe Fund, explains how he balances the fund’s allocation to financials, and why there is so much emphasis on financial infrastructure.
Banks provide the backbone of the financial sector and of the broader economy, but how to approach this sector from a quality growth lens provides a particular challenge. There is often the sense that they do not fit the quality style due to their high leverage – amplifying both gains and losses – as well as inconsistent revenues and profits, and the risk of the effects of external shocks. We disagree with this broad-brush view; there is nuance if you look hard enough.
We have a singular approach to investing in financials. Unlike many quality growth equity strategies, financials, including balance sheet banks, are a genuine part of our investment universe, a differentiating factor for us – as exemplified by our current 14% exposure to the sector, of which a notable share is in financial infrastructure, a necessity we see in achieving societal improvements, mainly United Nations Sustainability Development Goal (UN SDG) 9 which focuses on industry, innovation and infrastructure by targeting access to financial services and markets.
Banks have been on a strong run since 2020, driven by the value rotation – benefiting those lower-valued banks, in particular – macroeconomic shifts and improving fundamentals. Meanwhile, interest-rate hikes have boosted revenues, thus inherently improving fundamentals – even more so as we exited the negative interest rate policy era.
After a decade of sub-par capital returns, banks are now delivering once again. These robust earnings were turbocharged by higher net interest income due to higher rates, which widened the spread between
what banks earn on loans and what they pay on deposits, while stable loan growth and a resurgence in deal activity also supported earnings.
Historically, banks were not considered high-quality stocks due to their leverage and often volatile earnings. And due to their limited differentiation in offerings – mainly deposits and loan products – they have not demonstrated any sort of distinct economic moat. They are exposed to risks such as credit defaults and interest-rate fluctuations, are susceptible to regulatory changes and geopolitical uncertainties, and don’t always have the luxury of consistent revenue streams.
But today the sector is at its healthiest since the Global Financial Crisis. Capital management and profitability have improved and, with through our strict quality growth lens, we are taking a closer look at the banking sector in Europe, with a few banks now creeping back through our financial screens.
Of course, caution seems sensible and stock selection remains key. Is the trend we’ve seen over the past five years here to stay? Is there a risk of weakening earnings momentum? While the profitability of these banks has increased over the interest rate hiking cycle, prolonged political and trade uncertainty, coupled with lower interest rates, could have a negative impact on banks and their profitability, dampening net interest margins. European banks take more than 50% of their income from net interest income, meaning that they are highly sensitive to rate cuts – this is also something to keep an eye on. All this being said, we believe there is ample cause for positivity towards the sector, most notably in banks with a focus on wealth management, or in the midst of a turnaround story, such as UBS.
Yet where we have greater confidence is in what we describe as the ‘infrastructure play’ around the sector, whether is the form of securities exchanges, payment facilitators or even investment platforms within wealth management.
Securities exchanges consist of companies such as Euronext or Deutsche Boerse who provide trading and post-trade services across a range of financial instruments. They enjoy oligopolistic benefits due to high barriers to entry. And while they tend to be lower compounding stocks, they sit in the mid to high single-digit range on the basis of a mix of transactional and non-transactional earnings growth. They offer stable revenue streams from transaction fees, listing fees, and market data sales, growth opportunities via increased trading volumes and new listings, and are typically well-regulated, providing a level of safety and reliability for investors. Meanwhile, they have counter cyclical-qualities, tending to generate higher returns during periods of economic stress due to an uptick in trading and hedging activity. These companies often benefit from market volatility (supporting transaction activity) while the recent fiscal reforms in Germany set to encourage wider economic growth, could prove a tailwind as assets flock back to Europe over the coming years.
Companies like Adyen, within the Fintech space, provide payment processing to retailers. While there is a tech component which adds a layer of higher growth prospects, they have been noticeably reinvesting revenues to stay ahead of the curve in their markets. These fintech companies leverage technology to provide innovative financial services, often disrupting the existing market, while their economic moat relies on both the unified global payment system as well as the high switching costs to other providers. These companies boast structural growth drivers, namely the global shift towards digital payments and e-commerce growth; as cash usage decreases in favour of card and mobile payments, these companies will be beneficiaries (relative to banks, companies like Adyen look set for 50% three-year EPS growth versus 16% for the MSCI Europe Financials index1. These businesses also boast scalable infrastructure across regions and channels, are capital lite and enjoy recurring revenues (with straightforward fee models).
We see these companies benefiting from growth in e-commerce and, more broadly, the increased digitalisation of the economy. They also enjoy some defensive qualities given their lack of cyclicality.
Investment platforms such as Nordnet and Fineco Bank provide the infrastructure for individuals to invest their savings. They do not have the risk factor carried by traditional banks from their lending facilities, and tend to have diversified revenue streams and better cost-to-income ratios. We particularly like their focus on retail investors, given the structural shift towards self-directed investments and wealth planning services – key drivers of growth for these higher margin platforms. Meanwhile, their digital infrastructure is key; they tend to outpace traditional banks in terms of product delivery, service innovation and user experience. For example, they are at the forefront of artificial intelligence (AI) integration and have demonstrated better adaptation of newer trends such as crypto-linked investments and digital discretionary services. Their modern infrastructure also tends to be cheaper to run than their counterparts, while we expect these businesses to remain attractive, even in the face of lower rates.
Within the Carmignac Portfolio Grande Europe Fund, we see financial infrastructure as a core theme, with our exposure currently coming primarily via two names, Deutsche Boerse and Fineco Bank, in particular:
Deutsche Boerse
One of the three main European exchanges alongside Euronext and LSEG, Deutsche Boerse’s core business is across trading and post-trade processing. The structural reforms in Europe, such as in German pensions and the EU’s Savings and Investment Union, are expected to channel more institutional and retail capital into investments. Meanwhile, the company’s acquisition of Simcorp, a software solution for asset owners, is a growth driver and source of recurring revenue as it transitions to a software as a service (SaaS) model. Similarly, the company’s data and governance services bring further quality to clients in areas such as ESG. Overall, as a long-term compounding stock, Deutsche Boerse is at the forefront of innovation and technology as it integrates AI into software development and operations, and integrates digital assets into its post-trade services.
Fineco Bank
The Italian digital investment platform, Fineco, offers a vertically integrated banking, trading and investment platform to Italian retail investors. Its strong brand and high barriers to entry give it a competitive edge which has enabled rapid growth; it is now among the top five asset gatherers in its market. Fineco is also the market leader in ETF trading, with 70% of market share. The company enjoys low double-digit growth and supports its forward-looking growth potential, reinforced by its scalability, the structural growth in Italian retail investing, and the growing demand for financial advice.
Financials are often not considered in the space of quality growth equity investing, and for good reason, however, change is afoot. Meanwhile, via our financial infrastructure play, we are able to enjoy the benefits of exposure to the sector, the diversification qualities that these companies bring, all while taking less risk and having less exposure to cyclicality. As ever, stock picking is the key and we are at pains to diversify our exposure across the sector as a whole; indeed, our 14% weighting in the sector is well diversified across banks (c5%), stock exchanges (c3.5%), payments (c1.5%) and investment platforms (c.4%).
*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.
Carmignac Portfolio Grande Europe | 5.1 | 11.0 | -9.6 | 35.5 | 14.4 | 22.5 | -20.6 | 15.5 | 12.0 | -1.7 |
Reference Indicator | 1.7 | 10.6 | -10.8 | 26.8 | -2.0 | 24.9 | -10.6 | 15.8 | 8.8 | 8.5 |
Carmignac Portfolio Grande Europe | + 10.1 % | + 7.3 % | + 6.2 % |
Reference Indicator | + 12.8 % | + 11.2 % | + 6.3 % |
Source: Carmignac at Jun 30, 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: MSCI Europe NR index
MARKETING COMMUNICATION
Please refer to the KID/prospectus of the fund before making any final investment decisions. This document is intended for professional clients. 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 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. 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. Company. The risks, fees and ongoing charges are described in the KIID/KID. Investors may lose some or all their capital, as the capital in the funds are not guaranteed. The Funds’ prospectus, KIDs, KIIDs, NAV and annual reports are available at www.carmignac.com, or upon request to the Management Company. Investors have access to a summary of their rights in French, English, German, Dutch, Spanish, Italian at section 5 of "regulatory information page" on the following link: https://www.carmignac.com/en_US/regulatory-information.
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. The Management Company can cease promotion in your country anytime.
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 RatingTM: © 2023 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. Citywire Fund Manager Ratings and Citywire Rankings are proprietary to Citywire Financial Publishers Ltd (“Citywire”) and © Citywire 2022. All rights reserved. Citywire information is proprietary and confidential to Citywire Financial Publishers Ltd (“Citywire”), may not be copied and Citywire excludes any liability arising out its use.
Copyright: The data published in this presentation are the exclusive property of their owners, as mentioned on each page.
UK: This document was prepared by Carmignac Gestion, Carmignac Gestion Luxembourg or Carmignac UK Ltd and is being distributed in the UK by Carmignac Gestion Luxembourg.
Switzerland: the prospectus, KIIDs and annual report are available at www.carmignac.ch, or through our representative in Switzerland, CACEIS (Switzerland), S.A., Route de Signy 35, CH-1260 Nyon. The paying agent is CACEIS Bank, Paris, succursale de Nyon/Suisse, Route de Signy 35, 1260 Nyon.
Belgium: These materials may also be obtained from Caceis Belgium S.A., the financial service provider, at the following address: avenue du port, 86c b320, B-1000 Brussels. 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. A detailed calculation can be performed at www.carmignac.be. This tool does not constitute tax advice and is intended to serve solely as a calculation aid. This does not exempt from having to perform the procedures and verifications incumbent upon a taxpayer. The results indicated are obtained using data that the taxpayer provide, and under no circumstances shall Carmignac be held responsible in the event of error or omission on your part. Pursuant to Article 19bis of the Belgian Income Tax Code (CIR92), in the case of subscription to a Fund that is subject to the Savings Taxation Directive, 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. The net asset-values are available on the website www.fundinfo.com. 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.
Carmignac Gestion, 24, place Vendôme - 75001 Paris. Investment management company approved by the AMF. Public limited company with share capital of € 13,500,000 - RCS Paris B 349 501 676.
Carmignac Gestion Luxembourg, City Link - 7, rue de la Chapelle - L-1325 Luxembourg. Subsidiary of Carmignac Gestion - Investment fund management company approved by the CSSF. Public limited company with share capital of € 23,000,000 - RCS Luxembourg B 67 54.