Carmignac

Carmignac P. Credit: Letter from the Fund Managers

  • +1.57%
    Carmignac P. Credit’s performance

    in the 2nd quarter of 2023 for the A EUR Share class

  • +0.76%
    Reference indicator’s performance

    in the 2nd quarter of 2023 for the 75% ICE BofA Euro Corporate Index et 25% ICE BofA Euro High Yield Index

  • +4.17%
    Of annualized performance

    since launch of the fund (31/07/2017), compared to -0.39% for its reference indicator¹.

Carmignac Portfolio Credit was up 1.57% in the second quarter, versus 0.76% for its reference indicator. This brings its year-to-date performance to 2.89%, versus 2.62% for its reference indicator¹.

Quick overview of Q2 2023

Credit markets performed positively over the past three months as the stress created by the idiosyncratic incidents involving Silicon Valley Bank and Credit Suisse abated. In our last letter, in April, our view was that these issues were specific to the banks concerned and not of a systemic nature. And the record banking profits recorded in the first quarter, even adjusted for the rescue windfalls, corroborated our stance. Trouble always manifests in unexpected places when central banks restrict liquidity, but we remain very comfortable with the state of affairs for most large banks in Europe and the United States. Regulators have pushed – and continue to push – for sound liquidity and capital positions and have proven to be pragmatic and responsive in restoring confidence when needed. In addition, the return of positive interest rates is generally favourable for the longer-term profitability of financial institutions. As a testimony to the resumption of calm among investors, BBVA issued a new AT1 in June at a very attractive, but far from punitive, yield – reopening a market many had left for dead just a few weeks ago.

Beyond BBVA, Q2 saw a broad thawing of the primary high-yield market in the developed world. During the previous twelve months, high-yield issuance had been modest and was focused on companies that had engaged in dealmaking before Russia’s invasion of Ukraine, providing bridge loans that could be recycled later on the bond market. Most other companies generally had good liquidity after ten years of accommodative financing and were reluctant to crystallize higher financing costs unless they had no choice. But in May and June, these companies came to accept that their cost of debt will be higher going forward, and they’re refinancing upcoming maturities under these new conditions. The upshot is extremely promising circumstances for us. In fixed income, where investors don’t need to be desperate for yield anymore (because they can now park cash in short-term treasuries at comfortable yields), plain-vanilla BB risk is rewarded at spreads 20% to 30% higher than in 2019. Spreads are even higher in the more complex situations – we recently come across a number of opportunities where we can expect double-digit yields and where we estimate that the underlying fundamental cost of risk is a small fraction of that.

Now that value is returning to credit markets, and wide complexity spreads are available to judicious bond pickers, we see this as very exciting for the future performance of Carmignac Portfolio Credit. Additionally, we expect the higher borrowing costs across the board to restore a credit-default environment similar to the one experienced in the first three decades of the high-yield market. This will create attractive opportunities for high-alpha distressed-debt investments. Our fund already has a small position in a compelling distressed-debt situation that has performed very well since the beginning of the year.

Outlook

We currently have a very diversified portfolio with more than 200 lines and a yield of over 9% at quarter-end. We suspect this yield will climb meaningfully higher thanks to the early refinancing we expect to see on a number of our investments. The best risk-reward profiles in our fund lie in our structured credit book, where select collateralized loan obligation (CLO) tranches offer – in addition to floating rates – very generous spreads relative to their fundamental risk. We also still see meaningful value and generally improving credit quality in the finance and commodities industries.

You can rest assured that we won’t sit on our laurels after several weeks of solid returns. We’re well aware that liquidity remains tight, which will trigger further default incidents, and that volatility may well bounce back in the coming quarters. But if it does, that will usher in new opportunities, and the yield on our portfolio will largely mitigate the downside risk.

Source: Carmignac, Bloomberg, 30/06/2023

Carmignac Portfolio Credit

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Carmignac Portfolio Credit A EUR Acc

ISIN: LU1623762843

Recommended minimum investment horizon

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Main risks of the Fund

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

INTEREST RATE: Interest rate risk results in a decline in the net asset value in the event of changes in interest rates.

LIQUIDITY: Temporary market distortions may have an impact on the pricing conditions under which the Fund might be caused to liquidate, initiate or modify its positions

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.

Carmignac Portfolio Credit A EUR Acc

ISIN: LU1623762843
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 (YTD)
?
Year to date
Carmignac Portfolio Credit A EUR Acc - - - +1.79 % +1.69 % +20.93 % +10.39 % +2.96 % -13.01 % +10.58 % +2.51 %
Reference Indicator - - - +1.13 % -1.74 % +7.50 % +2.80 % +0.06 % -13.31 % +9.00 % +0.70 %

Scroll right to see full table

3 Years 5 Years 10 Years
Carmignac Portfolio Credit A EUR Acc +0.09 % +5.12 % -
Reference Indicator -1.58 % +0.30 % -

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Source : Carmignac at 28/03/2024

Entry costs : 2,00% 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 : 0,43% 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.
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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 Funds’ prospectus, KIDs, NAVs and annual reports are available at www.carmignac.com, 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 France, Luxembourg, Sweden: 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, NAV and annual reports are available at www.carmignac.com, or upon request to the Management.

  • In the United Kingdom: the Funds’ respective prospectuses, KIIDs and annual reports are available at www.carmignac.co.uk, or upon request to the Management Company, or for the French Funds, at the offices of the Facilities Agent at BNP PARIBAS SECURITIES SERVICES, operating through its branch in London: 55 Moorgate, London EC2R. 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.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.

The Management Company can cease promotion in your country anytime. Investors have access to a summary of their rights in English on the following links: UK ; Switzerland ; France ; Luxembourg ; Sweden.