Flash Note

Carmignac Portfolio Capital Plus: A low-volatility, multi-strategy solution to the challenges of a low yield environment February 2018

by
  • Carlos GALVIS - Fund Manager
  • Julien CHÉRON - Fund Manager
02.02.2018

Carmignac Portfolio Capital Plus has a unique investment philosophy that combines features, rarely seen together in a single fund:

(i) Multi-asset with 4 distinct performance drivers: equities up to 10%, rates, credit, currencies;

(ii) Multi-strategy with a diversified set of directional and non-directional strategies;

(iii) Ex-ante volatility target below 2.5% on an annual basis, with strong emphasis on risk budgeting across the whole investment process;

(iv) Opportunistic investment style that aims to exploit all absolute or relative investment opportunities that are suitable to be implemented with the 4 performance drivers.

The Fund’s 2017 performance (+1.65% with a volatility of 0.79% for the A EUR Acc share class) presents clear and concrete evidence of the strength of its underlying investment philosophy. In the current environment of resilient economic growth, reduced liquidity injections by central banks and a moderate rise of core interest rates, the decision of Fund Managers Carlos Galvis and Julien Chéron to implement equity and credit related strategies has been a success.

I. A long-term track record of attractive risk-adjusted returns

Since the arrival of Carlos Galvis in October 2010, the Fund has posted an annualised performance of +1.8%, with annual volatility ranging from 0.79% to 2.44%. The contained volatility within its maximum levels over the past 7 years proves that risk management is truly embedded in the investment process.

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II. High diversification potential through decorrelation from fixed income AND equity

Thanks to its multi-asset, multi-strategy and opportunistic approach, Carmignac Portfolio Capital Plus aims to deliver solid risk-adjusted returns across various market conditions, and to offer a significant decorrelation from the main equity and fixed income indices. As shown in the below matrixes, the correlation coefficients between the fund and the main indices are below 0.6. Therefore, the Fund is not only attractive from a return and absolute risk perspective, but also represents an excellent diversification tool.

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WHY CARMIGNAC PORTFOLIO CAPITAL PLUS IS AN INTERESTING INVESTMENT SOLUTION:

  1. The Fund adds a less directional performance driver to any portfolio, while being still UCITS compliant, as proven by its decorrelation from BOTH Fixed Income and Equity over the past 5 years.

  2. The ex-ante volatility target below 2.5% (SRRI of 2) make the Fund suitable for less risky fund portfolios (fund of funds), which are the most affected by the current low yield environment. The attractive risk adjusted returns of Carmignac Portfolio Capital Plus allow to increase their expected return with a moderate volatility. This seems very relevant in an environment where short-maturity Eurozone fixed income assets are still offering a negative average yield-to-maturity of -0.38% (at the end of 2017).

III. Outlook: Our Performance Drivers in 2018

As we move further into 2018, we remain constructive on the global economy, where the expansion continues to broaden and becomes more synchronised between developed and emerging markets. While we expect major central banks to further reduce their balance sheets, we don’t believe this will be detrimental to risk assets in general. As a result, we will look to maintain our strategy of focusing the portfolio on long exposure to global equity and credit markets. We expect yield curves to steepen and the dollar to remain under pressure as the business cycle matures in the US. In Europe, our forecast is for further compression of spreads on peripheral bonds as the economic recovery broadens and political risk diminishes. In Japan, we believe good fundamentals, high liquidity and attractive valuations will continue to support both the currency and the equity markets. Finally, emerging markets should continue to be buoyed by idiosyncratic factors (region or country-specific risk) and the low real interest rates across developed markets. The risks to our global strategy are centred on two main factors: first, on lower US growth with recession probability increasing as the economic expansion goes into its tenth year. Second, stronger deceleration in China as policymakers further tighten liquidity to counterbalance credit growth and thereby rein-in asset prices, particular the much talked about property bubble. This environment will definitely weigh on the rest of the emerging world and the commodity space. Managing those risks will be key this year for continuing to deliver performance similar to what has been achieved in the past.

As a multi-asset and multi-strategy Fund, we believe Carmignac Portfolio Capital Plus can be well suited for the challenges presented in 2018 and beyond. The flexibility to invest across several asset classes (rates, credit, currencies and equities up to 10%) with long or short exposures (the prospectus admits net equity exposures between -10% and +10%, positive or negative duration and long/short currency positions), allows the Fund to benefit from different performance drivers in varied market conditions, while keeping volatility under control.

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Carlos Galvis
Fund Manager

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Julien Chéron
Fund Manager

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.

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.

CREDIT Credit risk is the risk that the issuer may default.

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 capital loss.