Carmignac Sécurité: Letter from the Fund Managers - Q1 2026

In the first quarter of 2026, Carmignac Sécurité posted a performance of -0.52%, compared with -0.44% for its reference indicator.

The first quarter of 2026 was dominated by a succession of geopolitical and political shocks, culminating in the outbreak of war involving Iran, which ultimately drove a sharp repricing across fixed income markets.

The first two months of the year unfolded in a relatively constructive, albeit increasingly fragile, environment. Political risks resurfaced quickly, with tensions around Greenland, renewed tariff threats and the US intervention in Venezuela contributing to a gradual deterioration in sentiment. Uncertainty around trade policy following the US Supreme Court ruling on tariffs, combined with growing concerns over the impact of artificial intelligence (AI) on employment and emerging signs of stress in private credit, further increased investor caution.

This environment led to a clear rise in risk aversion and supported sovereign bond markets, resulting in a decline in yields, with 10-year German and US rates falling by around 20 basis points and 30 basis points respectively in February.

March, however, marked a clear regime shift. The outbreak of military conflict with Iran at the end of February and the disruption risk around the Strait of Hormuz triggered a sharp surge in energy prices and a reassessment of inflation risks. Euro area inflation rose to 2.5% in March, and the ECB warned on 19 March that the conflict was creating upside risks to inflation and downside risks to growth. Inflation expectations moved significantly higher, with the euro area 1-year inflation swap rising by 157 basis points in March to 3.37%. In turn, markets rapidly shifted from pricing potential rate cuts to anticipating further monetary tightening, leading to a broad sell-off across fixed income assets.

Sovereign bond markets reacted abruptly. In Europe, 10-year Bund yields rose by 15 basis points over the quarter to reach 3.00%, closing above this threshold for the first time since 2011, including a 36 basis point increase in March alone, while the repricing was even more pronounced at the front end, with the 2-year yield rising by 62 basis points over the month, reflecting a rapid repricing of monetary policy expectations towards more than three hikes by year-end. In the United States, Treasury yields also moved higher, with the 10-year reaching around 4.30% at quarter-end.

Credit markets followed the same pattern, with a marked increase in risk aversion. Spreads widened significantly across the board, as reflected in the rise of the iTraxx Xover index, which widened by 93 basis points in March, highlighting the broad-based repricing of credit risk.

The beginning of the year was supportive, with performance driven by the carry of our credit allocation, particularly short-dated corporate bonds in financials, energy and CLOs. However, the sharp repricing in March, marked by rising yields and widening credit spreads following the outbreak of the Iranian conflict, weighed on performance. Credit exposure was the main detractor, as spread widening more than offset its carry. This was partially mitigated by our defensive positioning, with iTraxx Xover credit hedges, inflation strategies and short positions on French and US sovereign bonds helping cushion the impact of the sell-off.

Modified duration was actively managed throughout the quarter, it commencing the beginning of the year at 2.6 and reduced to around 1.8 in early March, before being rebuilt to around 2.4 by quarter-end. In February, risk aversion driven by AI concerns, tensions with Iran and tariff uncertainty pushed yields lower. With US growth remaining resilient and inflation persistent, we used this move to reinforce our short exposure to US rates, both outright and via options.

Following the outbreak of the Iranian conflict, we progressively increased duration, focusing on the front end of the European curve, particularly Germany, France and Italy, where yields had become more attractive as markets priced more than three ECB rate hikes despite a fragile growth outlook. At the same time, we adjusted the portfolio’s risk profile by reducing its steepening bias in a stagflationary environment, increasing our exposure to inflation-linked strategies through breakeven positions in Europe, and actively managing US and German rate exposures via options.

The sharp repricing observed in March has significantly improved the investment opportunity set for Carmignac Sécurité. Markets have moved from a broadly neutral stance to pricing a markedly more hawkish scenario, with more than three ECB rate hikes expected by year-end. In our view, this sets a high bar in a context where growth in euro area remains fragile and increasingly sensitive to higher energy prices.

This repricing has created attractive entry points, particularly at the front end of the European yield curve, where yields have reached levels not seen since mid-2024. The portfolio now offers a yield-to-maturity of around 4.0%, providing both a compelling source of carry and a strong buffer against market volatility.

The Fund maintains a barbell construction combining carry generation with active risk management. The core of the portfolio remains invested in short-dated, highly rated corporate bonds, offering an attractive risk-adjusted return profile with limited sensitivity to spread volatility. This is complemented by a long exposure, now focused on the belly of the euro curve (2-5-year segment), where we see the most favourable risk-reward following the recent repricing.

This allocation is balanced by a set of defensive and opportunistic strategies, including a short position on French government bonds in a context of fiscal and political uncertainty, a tactical short position on US rates, long positions in euro area and US breakeven inflation to capture persistent inflation dynamics, and 8% of credit protection via iTraxx Xover to hedge against further spread widening. In addition, we have taken advantage of higher yields following the recent sell-off to gradually reinvest money market allocations into government bonds in the 2–5-year segment, leading to a significant reduction in our exposure to money market instruments.

In a still uncertain and volatile environment, we believe that this combination of attractive carry, active duration management and robust hedging strategies positions Carmignac Sécurité to navigate market dislocations while capturing the opportunities created by the recent reset in yields.