Carmignac P. Flexible Bond: Letter from the Fund Managers
In the second quarter of 2025, Carmignac Portfolio Flexible Bond posted a net performance of +0.70% for the A shareclass, while its benchmark1 was up +1.69%.
The bond markets today
The start of the second quarter of 2025 was marked by renewed risk aversion on the bond markets following the Trump administration's announcement that it would impose tariffs on all of its trading partners. Although the US administration ultimately decided to delay the implementation of these tariffs until July, a crisis of confidence took hold among investors, who in April began to factor in a relatively pessimistic scenario for US growth momentum. The market therefore priced in up to four rate cuts in the US at the height of the trade war, before gradually reversing course in the following months given resilient employment data and stronger-than-expected inflation, returning to a scenario of two rate cuts in the second half of the year. Markets were also disrupted by escalating tensions in the Middle East between Israel and Iran, which led to multiple air strikes, notably on Iranian nuclear infrastructure. Although the conflict caused some volatility in commodity prices, with fears of a wider conflagration in the region and a possible blockade of the Strait of Hormuz, bond assets held up remarkably well, benefiting from robust technical factors. Credit markets saw their spreads tighten during the quarter despite the trade war and geopolitical deterioration, with the Itraxx Xover index tightening by -45 basis points. In the eurozone, rates eased, wiping out the impact of new Chancellor Merz's announcements in the previous quarter, with the German 10-year rate falling by -14bp over the observation period. Although the European Central Bank opted for two rate cuts during the quarter, Christine Lagarde's tone remained relatively cautious given the outlook for inflation. We also noted an improvement in leading indicators on the Old Continent, particularly in the manufacturing sector, pointing to a change in the growth momentum. In the United States, the yield curve steepened with a -18bp decline in short-term rates, reflecting investor concerns about the short-term momentum of the US economy, while long-term rates rose, with the 30-year rate up +19bp, reflecting concerns about the deficit trajectory across the Atlantic. Finally, it should be noted that pressure on bond assets spread to Japan, where inflation settled well above 3%, creating a strongly bullish environment for Japanese 30-year rates, which rose by +40bp over the quarter.
Asset allocation
In an environment of high volatility in US rates, the fund delivered a positive performance of +0.70% over the quarter (share class A EUR Acc), compared with +1.69% for its benchmark, which benefited from its European bias, where rates were more inclined to fall. We remained proactive during the quarter, both in terms of allocation to the various bond segments and in managing the fund's interest rate sensitivity. On the first point, we partially took profits on our credit protection at the height of tensions on the corporate bond markets following “liberation day” in early April, reducing the level of credit default swaps in the portfolio from 19% to 11%, enabling the fund to better capture the market rebound that followed Donald Trump's reversal on the implementation of tariffs. We also actively managed the fund's sensitivity within a range of [-2.9; +4.5] in order to capture the fall in rates following the intensification of the trade war at the beginning of the period and then benefit from the flattening of the US yield curve, with a sharp rise in long-term rates linked to investor mistrust of the Trump administration's roadmap. We were able to capture these various market movements thanks to option strategies that allowed us to benefit from favorable market conditions and risk aversion. Finally, we also adjusted our exposure to inflation-linked instruments in line with geopolitical events, taking advantage of tensions in the Middle East to increase our weighting in European inflation break-even rates, which are generally more sensitive to commodity price appreciation. We ended the quarter at the lower end of our rate sensitivity range at -1.0, mainly reflecting a bullish view on the long end of the European and US yield curves and on Japanese rates. The fund's carry stood at 4.1% at the end of the period, reflecting a strong appetite for hybrid instruments and the idiosyncratic selection of credit issuers offering positive real yields, while also maintaining 12% overlay on the Itraxx Xover index to protect against potential valuation shocks in the future.
Outlook
We continue to see marked pessimism among investors regarding growth momentum on both sides of the Atlantic. This is reflected in expectations of rate cuts, which we believe are relatively generous given the resilience of the labour market and the latest inflation statistics. On the other hand, the budget roadmaps of various economies appear costly to us, arguing for a future appreciation of the longest maturities on the yield curve. The intensification of the trade war and geopolitical events should increase inflationary pressure in various regions of the world, favouring investment in inflation-linked instruments, while the market is still pricing in a return of inflation to below the various central banks' targets. Finally, we remain cautious on credit assets, which have become significantly more expensive despite recent market events. While the carry remains attractive, an increase in default rates across the credit issuer spectrum in a persistently high and more inflationary interest rate environment cannot be ruled out in the future.
Source: Carmignac as at 30/06/2025. A EUR Acc shareclass.
1ICE BofA Euro Broad Market Index (coupons reinvested). On 30/09/2019 the composition of the reference indicator changed: the ICE BofA ML Euro Broad Market Index coupons reinvested replaces the EONCAPL7. Performances are presented using the chaining method. On 10/03/2021 the Fund’s name was changed from Carmignac Portfolio Unconstrained Euro Fixed Income to Carmignac Portfolio Flexible Bond. 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 applicable entrance fee acquired to the distributor).
Carmignac Portfolio Flexible Bond
A flexible solution aiming to capture bond opportunities globallyDiscover the fund pageCarmignac Portfolio Flexible Bond A EUR Acc
- Recommended minimum investment horizon
- 3 years
- Risk indicator*
- 2/7
- SFDR - Fund Classification**
- Article 8
*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.
Main risks of the fund
Fees
- Entry costs
- 1,00% 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
- 1,22% 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
- 0,35% 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
| Carmignac Portfolio Flexible Bond | 0.1 | 1.7 | -3.4 | 5.0 | 9.2 | 0.0 | -8.0 | 4.7 | 5.4 | 3.6 |
| Reference Indicator | -0.3 | -0.4 | -0.4 | -2.5 | 4.0 | -2.8 | -16.9 | 6.8 | 2.6 | 0.9 |
| Carmignac Portfolio Flexible Bond | + 6.2 % | + 2.3 % | + 1.6 % |
| Reference Indicator | + 1.5 % | - 1.7 % | - 1.1 % |
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: ICE BofA Euro Broad Market index
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