Carmignac P. Flexible Bond: Letter from the Fund Managers

Published on
10 January 2024
Read time
6 minute(s) read
+5.50%Carmignac P. Flexible Bond’s performance in the 4th quarter of 2023 for the A EUR Share class.
+6.53%Reference indicator’s performance in the 4th quarter of 2023 for ICE BofA ML Euro Broad index (EUR).
+4.66%Absolute performance of the Fund in 2023.

In the fourth quarter of 2023, Carmignac Portfolio Flexible Bond posted a positive performance (+5.50% for the A share), slightly below its benchmark (+6.53% for the ICE BofA ML Euro Broad index (EUR)). The fund thus ended the year with a positive performance of +4.66% versus +6.82% for its benchmark.

The bond markets today

2023 turned out to be a buoyant year for bond assets, thanks to a late awakening of the markets in the fourth quarter. Indeed, at the end of October, median returns were barely positive across the entire bond spectrum - with a notable disparity between carry assets - which were doing well - and fixed-income assets - which were struggling. However, the cocktail of less robust US consumer and employment data, combined with a stronger-than-expected slowdown in inflation, helped to trigger a higher risk appetite among investors. This was also reflected in communications from central banks, which did more than announce a definitive pause in their rate hike cycles, and evoked the prospect of a rate cut for the coming year in the case of the US Federal Reserve. Over the quarter, long-term yields fell considerably, with the German 10-year yield easing by 85bp to 2% and the US 10-year falling by 70bp to 3.88%. The same is true of credit spreads, which narrowed by -118bp on the Xover index during the observation period, returning to a level of valuation prior to the outbreak of war between Russia and Ukraine, thus arguing for a form of vigilance despite a still-attractive carry. While this long-awaited market rebound comes more than a year after inflation peaked, the historical performance of the last two months must be set against the complexity of the current environment. Indeed, the geopolitical situation has deteriorated considerably with rising tensions in the Middle East, growing deficits will have to be financed and the cyclical component of inflation remains high. At the same time, China has continued to sink into a deflationary spiral, weakening the world economy's growth prospects at a time when the US consumer is beginning to show signs of slowing. Lastly, while inflation did fall on both sides of the Atlantic, this slowdown was due more to the most volatile components, such as energy, which benefited from favourable base effects. The road ahead for core inflation to return to the central bankers' target will probably be much longer, and potentially more painful, than the market is taking it for granted.

Asset allocation

Over the year, the fund delivered a positive absolute performance, benefiting from its exposure to credit assets, notably financial subordinated debt, high-yield credit and structured credit, as well as to sovereign debt in both emerging and developed countries. On the other hand, relative performance was impacted by our credit and interest-rate hedging strategies in 2023. During the fourth quarter of 2023, we carried out several arbitrages to adapt the portfolio to different market phases:

  • Our management of interest-rate sensitivity remained dynamic over the observation period in an environment of considerably higher interest rates. The portfolio's overall sensitivity was gradually reduced by taking profits on core euro and US rates. Our exposure to peripheral European debt was fully neutralized by taking a short position on Italian sovereign rates. We also increased our short position in Japanese yields in view of the Bank of Japan's gradual tightening of tone. This had the effect of reducing the fund's interest-rate sensitivity to 2.44 from 7.02 at the start of the period.

  • Our gross exposure to credit assets remained stable over the observation period, but we remained pro-active in managing the portfolio's net exposure. At the beginning of the period, we implemented tactical protection through CDS on the Xover index, in order to hedge against the widening of credit spreads in a risk-averse environment. We reduced this credit hedge from -18% to -14% at the end of October, then maintained this short position until the end of the observation period. Finally, we also increased our exposure to US and euro break-even inflation rates at the end of the period, in view of the sharp contraction in inflation data, which seems to us to be linked more to base effects than to structural factors.


After a particularly favourable end to the year for fixed income assets, the future direction of the markets raises questions. Although inflation has fallen sharply in recent months, coming close to the central bankers' target, it remains under pressure from secular trends (military conflicts, ageing populations, energy transition, relocation of production chains) and cyclical trends (the US economy is resisting the rate shock well). The first part of the year is likely to be characterized by the possibility of the US economy not landing, while the European economy oscillates between stagnation and recession, and China is still slow to show signs of easing both on the economic and political fronts. In the short term, these uncertainties argue in favor of active management, combining exposure to credit assets to benefit from carry (over 5% in the fund) and tactical protection to guard against any widening of credit spreads following the sharp tightening of index valuations. We are also maintaining long positions on real rates and break-even inflation rates, to hedge the fund in the event of any unpleasant surprises on the disinflationary expectations front. We believe that the market has now taken on board the potential for rate easing by central bankers in 2024, prompting us to take profits and adopt active duration management, particularly on long rates, which are likely to suffer from high issuance volumes.

Carmignac Portfolio Flexible Bond

A flexible solution aiming to capture bond opportunities globallyDiscover the fund page

Carmignac Portfolio Flexible Bond A EUR Acc

ISIN: LU0336084032
Recommended minimum investment horizon
3 years
Risk indicator*
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

Main risks of the fund

Interest Rate: Interest rate risk results in a decline in the net asset value in the event of changes in interest rates.Credit: Credit risk is the risk that the issuer may default.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.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.
The Fund presents a risk of loss of capital.


ISIN: LU0336084032
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
1,20% 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
0,38% 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.

Annualised Performance

ISIN: LU0336084032
Carmignac Portfolio Flexible Bond2.0-
Reference Indicator0.1-0.1-0.3-0.4-0.4-2.54.0-2.8-16.96.8
Carmignac Portfolio Flexible Bond- 0.4 %+ 2.2 %+ 1.0 %
Reference Indicator- 4.3 %- 2.7 %- 1.5 %

Source : Carmignac at 28 Mar 2024 .
​Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).

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