Carmignac Sécurité: Letter from the Fund Managers - Q2 2026

In the second quarter of 2026, Carmignac Sécurité posted a performance of +1.24%, compared with +0.95% for its reference indicator¹.

The second quarter of 2026 once again demonstrated how quickly market narratives can shift. Following a turbulent first quarter dominated by geopolitical tensions and inflationary concerns, investor sentiment improved significantly as fears of a broader Middle East conflict eased. The interim agreement between the United States and Iran, culminating in the reopening of the Strait of Hormuz, drove Brent crude to its largest quarterly decline since the first quarter of 2020. This prompted a broad reassessment of inflation risks, supported sovereign bond and credit markets, and shifted investors' focus back to resilient economic fundamentals.

Against this backdrop, central banks adopted a cautious stance. The Federal Reserve's (Fed) first meeting under Chair Kevin Warsh delivered a hawkish message, highlighting the resilience of the US economy and signalling that rates may need to remain restrictive for longer. Market expectations consequently shifted from pricing around 7 basis points of rate cuts at the start of the quarter to nearly 40 basis points of additional tightening by quarter-end. In Europe, the European Central Bank (ECB) raised its deposit rate by 25 basis points to 2,25%, its first increase since 2023, with President Christine Lagarde emphasising that broadening inflation pressures justified further policy normalisation despite lower energy prices.

Although monetary policy remained restrictive, falling oil prices provided a favourable backdrop for fixed income, with divergent performances across sovereign bond markets and flatter yield curves. US Treasury yields rose, with the 2-year increasing by 38 basis points and the 10-year by 15 basis points, reflecting stronger economic data and a more hawkish Fed. Conversely, German Bunds rallied as easing inflation expectations pushed the 2-year yield down by 9 basis points and the 10-year by 14 basis points.

Credit markets also remained resilient. Strong corporate fundamentals, robust demand for yield and easing geopolitical tensions drove further spread compression across investment grade and high yield markets, with the iTraxx Xover outperforming and tightening by 108 basis points.

Against this constructive backdrop, Carmignac Sécurité delivered a positive performance during the second quarter, with carry once again representing the Fund's main source of returns. The portfolio benefited from its significant allocation to short-dated corporate credit, particularly in our preferred sectors, financials, energy and collateralised loan obligations (CLOs), which all gained from further credit spread tightening.

Interest rate strategies also contributed positively. Long positions at the front end of the euro yield curve benefited from the rally in European government bonds as geopolitical tensions eased, while inflation positions added value before giving back part of their gains following the sharp decline in oil prices. Conversely, credit hedging slightly detracted from performance in the increasingly risk-on environment.

Duration was actively managed in line with our central scenario of two ECB rate hikes. We initially reduced duration from 2,5 to around 2,0 years while markets priced fewer than two hikes, before increasing it to 2,6 years by the end of June as expectations shifted towards a more hawkish ECB. We strengthened exposure at the front end of the German curve as valuations became more attractive and progressively added Italian real rates. We also realised gains on selected emerging market positions, notably Hungary following the Magyar election victory, while reducing exposure to Romania amid rising political uncertainty. In the US, we reduced our short duration exposure through a curve-steepening strategy by adding a long position in the 5-year segment while maintaining short exposure at the long end.

The investment environment remains characterised by resilient economic activity, persistent medium-term inflation risks and elevated geopolitical and fiscal uncertainty. While lower energy prices have eased immediate inflation concerns, markets remain vulnerable to renewed volatility as central banks continue to navigate a challenging policy environment.

Against this backdrop, we continue to rely on the Fund's balanced construction, combining an attractive carry profile with diversified hedging strategies to enhance resilience across market cycles. The portfolio remains heavily invested in credit (around 78%), primarily through short-dated, highly rated corporate bonds, which continue to offer attractive income while limiting sensitivity to interest-rate volatility.

This core allocation is complemented by a long exposure at the front end of the euro yield curve, where valuations remain attractive following recent repricing, a US curve steepener reflecting our view that policy expectations remain overly restrictive, long positions in euro area and US breakeven inflation, a short position in French government bonds amid persistent political and fiscal uncertainty, and iTraxx Xover credit hedging against a potential widening in spreads from historically tight levels.

Finally, the Fund continues to benefit from an attractive yield-to-maturity of approximately 3,9%, providing both a solid source of income and a first line of defence during periods of higher interest-rate volatility or wider credit spreads. In an environment where income has once again become the primary driver of fixed income returns, we believe Carmignac Sécurité remains well positioned to deliver attractive risk-adjusted performance over the medium term.