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Quality and Sustainable Investment: Chicken or Egg

Published on
August 28, 2024
Read time
3 minute(s) read

Quality and sustainable investment are closely intertwined, with certain studies even suggesting that three quarters of the outperformance of ESG strategies can be directly attributed to the quality factor1. However, although the correlation is significant, the causal relationship between the two does not appear to be clearly established. At Carmignac, we firmly believe that quality and sustainable investment are two sides of the same coin that mutually strengthen each other in a virtuous cycle.

The need to define quality

For over 20 years, Mark Denham, co-manager of the fund, has asserted that long-term performance relies solely on the ability to select companies with the best prospects. These companies, which Mark refers to as 'quality', must meet specific criteria:

  • They must be able to generate high and stable profits over time, which they can
    reinvest to sustain their growth trajectory.

  • They must also have a positive impact on the environment and society.

This conviction has been quantified through a detailed investment process. Over time, this process has been enriched by adapting to the increasing availability of extra-financial data. However, the initial philosophy of excluding the worst-performing companies and rewarding the most promising on financial and extra-financial criteria has remained unchanged.

Quality and sustainable investment for the benefit of:

The financial solidity of our investments
Our definition of the quality factor focuses on companies with high and sustainable margins. This characteristic assures us that these companies are capable of improving their revenues and maintaining profitability over time. As a result, they are better equipped to navigate through economic cycles and make investments to ultimately securing future growth.
By adopting a sustainable approach, companies can improve their use of resources, resulting in lower costs and greater profitability over the long term. Similarly, by investing in the development of human capital, companies can improve their productivity. These attributes make companies more competitive and thereby improve their profitability.

L'Oréal

The company has successfully decoupled its growth from its negative impact on the environment, reducing its absolute emissions by 91% compared to 2005, while increasing its production volumes by 45% and maintaining its operating margin between 15 and 20%.
Business sustainability
On top of profitability, our strategy focuses on companies that reinvest their profit to create new business drivers. The objective is to identify companies that can efficiently utilize their profits to fund internal or external projects. To assess this aspect, we utilize the Holt CFROI ratio, which allows us to uniformly compare the return on capital of all companies.
We believe that only companies that take account of their impact on all their stakeholders can outperform the market over several decades. This is precisely why we choose to exclude the most polluting companies from our investments. Additionally, we actively engage with the companies we invest in to ensure that their ongoing efforts align with our values.

Demant

The other Danish health giant is a global group that specializes in hearing care. Its remarkable growth has been driven by numerous innovations since 1904. We are committed to supporting them in improving their governance and encouraging them, like their products, to listen more closely to their investors.
Risk reduction
Quality companies generally have healthy balance sheets, stable cash flows and lower debt levels.
Moreover, they possess ample resources to invest in and adapt to evolving market conditions, such as emerging technologies, regulatory changes, and shifting consumer expectations. Consequently, they face a lower risk of their business model becoming outdated or obsolete.
Sustainable investment helps investors assess the risks associated with a company's future performance, by considering its environmental, social, and governance practices. We utilize our proprietary START tool to analyze these risks. By doing so, we strive to minimize our exposure to non-financial risks that may impact a company's profitability.

Schneider Electric

The company contributes to the security of electricity supply for the grid and buildings, and offers services to optimise their energy efficiency. The emissions avoided by their customers have tripled over the last 3 years, reaching 440 mtCO2e, higher than France's carbon footprint in 2023 (385 mtCO2e – territorial emitted).

A strategy that combines quality and sustainable investment

Carmignac P. Grandchildren is an equity fund that has capitalised on the process established by Mark two decades ago. This Article 9 fund, launched 5 years ago, offers a distinctive approach by investing in quality companies across the developed world. As an all-round fund, it is distinguished by:

Concentrated exposure to quality companies across developed countries43 portfolio holdings
A clear and coherent sustainable framework, enabling you to have a clear understanding of your investments100% of our investments are aligned with the UN SDGs (ex-cash)
Reducing greenhouse gas emissions < 50% Carbon emissions than its benchmark
Total transparency on both the financial and non-financial dimensions of the portfolio3 ESG reporting at your disposal
Exposure to companies capable of generating high returns on their investments23% Return on equity of the fund compared to 14% for the MSCI World
Outstanding long-term performance+89% vs 87% for the MSCI World over the last 5 years
A recognised sustainable approach

1Bruno G, Esakia M, Goltz F, Honey, I shrunk the ESG alpha: Risk-adjusting ESG portfolio returns. Scientific Beta Publication, April 2021. Source: Carmignac, Bloomberg, at 31/05/2024.
The composition of the portfolio may change over time. Trademarks and logos do not imply any affiliation with or endorsement by the respective entities. Reference to a ranking or award does not constitute a guarantee of the future results of UCIS or the manager.
*https://www.lelabelisr.fr/en/;
https://www.towardssustainability.be/; https://www.febelfin.be/fr; Socially Responsible Investment, https://www.carmignac.fr/fr_FR/nous-connaitre/investissement-socialement-responsable-isr-1252. SRI and Febelfin labels obtained in January and February 2020 respectively. SFDR fund classification: Article 9 from 1 January 2022. Sustainable Finance Disclosure Regulations (SFDR) 2019/2088. For more information, please refer to EUR-lex..
Past performance is not necessarily indicative of future performance. Returns may increase or decrease according to currency fluctuations for equities that are not hedged against currency risk. Performance is net of fees (excluding any entry fees charged by the distributor).

Carmignac Portfolio Grandchildren

An intergenerational Fund focused on quality, sustainable companies
Discover the Fund page

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 Oct 30, 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.

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.

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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.

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.