Carmignac Portfolio Emerging Patrimoine: Letter from the Fund Managers - Q1 2026

In the first quarter of 2026, Carmignac Portfolio Emerging Patrimoine delivered a net performance of +3.06%, outperforming its reference indicator (+0.66%), driven primarily by the rebound of its equity investments and, to a lesser extent, by its credit protection strategies.

The first quarter of 2026 was marked by a clear inflection in global market dynamics, with a transition from a supportive environment at the start of the year to a more volatile and geopolitically driven backdrop by quarter-end.

The first two months extended the positive momentum observed in 2025, emerging market assets benefited from a combination of a still-accommodative financial conditions and strong fundamentals. In equities, this translated into continued strength in North Asian technology and commodity-linked markets, while in fixed income, both local and hard-currency was supported by yield compression and currency appreciation.

This environment shifted markedly in March following the escalation of the conflict in the Middle East. The outbreak of hostilities involving Iran triggered a sharp energy shock, with oil prices rising above $110 per barrel amid disruptions to flows through the Strait of Hormuz. This led to a broad repricing across asset classes, with rising inflation expectation, higher global yields and a marked increase in risk aversions.

Emerging market equities experienced a sharp correction, reversing part of their earlier gains. The impact, however, was highly differentiated. Oil-importing economies, particularly in South and Southeast Asia, were the most exposed, with India facing a sharp drawdown amid rising energy costs and currency pressures. By contrast, commodity-exporting countries, like in Latin America, benefited from improved terms of trade and stronger investor flows. North Asian markets, particularly South Korea and Taiwan, demonstrated relative resilience, supported by continued strength in the semiconductor and AI-related sectors.

In fixed income, the geopolitical shock triggered a sharp shift in monetary policy expectations. Markets moved from pricing potential rate cuts to anticipating a more hawkish stance from central banks, reflecting renewed inflation concerns. In the United States, this repricing led to a significant rise in yields, with the 2-year and 10-year Treasury increasing by around 42 and 28 basis points respectively in March. This move also spilled over into emerging markets, putting upward pressure on local rates and tightening financial conditions.
As a result, hard-currency debt came under pressure amid widening spreads, while local debt was impacted by both higher rates and currency depreciation. Nevertheless, some commodity-linked currencies proved more resilient, benefitting from higher energy price.

Overall, the quarter highlighted the increasing importance of selectivity with emerging markets. While the asset class faced a more challenging environment, underlying fundamentals remained relatively strong, with contained inflation, improved external balances and more credible monetary policy frameworks compared to previous periods of stress.

During the first quarter of 2026, the Fund delivered a positive absolute performance, outperforming its reference indicator, supported by the strong performance of its equity selection and its defensive positioning, notably through credit protection strategies.

On the equity side, performance was driven by our exposure to Asia, particularly South Korea and Taiwan, which were the main contributors over the quarter despite the March sell-off. Our technology holdings were the key drivers, benefiting from continued strength across the AI value chain. In Taiwan, TSMC was the largest contributor, supported by sustained demand for advanced semiconductors and its leading position in the AI hardware ecosystem. South Korea also contributed positively, with SK Hynix benefiting from strong memory pricing and ongoing earnings upgrades, while Hyundai Motor performed well as the market increasingly recognized the value of its robotics subsidiary, Boston Dynamics. Latin America also contributed positively, with names such as Axia Energia supported by strong stock selection and improving investor sentiment. Conversely, some positions in India and in platform businesses detracted, amid broader market weakness and concerns over the sustainability of asset-light models in a more competitive AI-driven environment.

On the fixed income side, contributions were slightly negative over the quarter. In local-currency debt, performance was initially supported by our long duration positioning during the first two months of the year, particularly in high real rate environments. However, these gains were more than offset by the sharp repricing in rates observed in March. Our long positions in local rates, notably in South Africa, Peru and Colombia, were the main detractors as yields moved higher, despite some positive contributions from selected Latin American markets such as Mexico and Brazil.

Hard-currency sovereign debt was the main detractor within fixed income, in a context of widening spreads. Our exposures to Egypt and Romania were particularly impacted, with Egypt proving more sensitive to the deterioration in global risk sentiment. However, this negative contribution was largely offset by our credit protection strategies, notably via CDS indices such as iTraxx Xover, which performed well during the market correction.

Finally, currency allocation contributed positively over the period. Despite a negative contribution from the U.S. dollar, the Fund benefited from its exposure to several commodity-linked currencies, including the Kazakh tenge and the Chilean peso, which were supported by rising energy prices.

Going forward, while geopolitical developments may continue to generate short-term volatility, our medium- to long-term investment thesis on emerging markets remains unchanged. Emerging economies today benefit from stronger fundamentals, more credible central banks and healthier external balances than in previous cycles, providing a solid foundation to navigate the current environment. We therefore remain constructive on emerging market assets, supported by resilient fundamentals, improving external balances and still-attractive valuations across both equities and fixed income. However, in a context of heightened geopolitical uncertainty and rising inflation risks, we believe a more selective and flexible approach is warranted.

Over the quarter, we have actively reduced the overall risk profile of the portfolio. Net equity exposure was gradually lowered from around 36% at the beginning of the year to below 10% at the end of March, and modified duration was reduced from approximately 220bps to around 120bps, notably through the implementation of short positions on developed market rates. These adjustments reflect our focus on preserving capital while maintaining exposure to the most compelling opportunities.

On the equity side, we maintain a positive but selective bias, focusing on companies with strong structural growth, high earnings visibility and robust balance sheets. Asia remains a core pillar of the portfolio, particularly through exposure to the AI value chain, with high-conviction positions such as TSMC and SK Hynix. At the same time, we have reduced exposure to more cyclical or vulnerable areas such as India, although we remain confident in its long-term growth prospects. We also retain selective exposure to Latin America, supported by attractive valuations and improving macro dynamics.

In fixed income, we have reduced our exposure to local-currency debt in countries more sensitive to the energy shock, particularly in Central and Eastern Europe. We remain selectively invested in markets offering attractive real yields, including parts of Latin America and South Africa. In hard-currency sovereign debt, we maintain a broadly stable allocation, focusing on our core convictions such as Côte d’Ivoire, Egypt and Romania, while increasing exposure to Ecuador, where improving macroeconomic discipline and ongoing reform momentum support a constructive outlook.

In a context of elevated energy prices and renewed inflationary pressures, we maintain exposure to inflation-linked bonds in selected markets, notably Brazil and Poland. We have also strengthened our credit protection strategies, both through indices and single-name CDS, including positions on countries more exposed to geopolitical risks such as Qatar and South Africa.

On currencies, we have significantly adjusted our positioning. We reduced our exposure to the euro from around 40–50% to approximately 25% and increased our allocation to the U.S. dollar to around 35% in March, before lowering back at the end of the period. We continue to favour commodity-linked currencies such as the Brazilian real and Kazakh tenge, which benefit from the current energy environment, and have taken profits on the Chilean peso following its strong performance earlier in the year. In contrast, we have reduced exposure to several Asian currencies, which are more vulnerable as net energy importers. We have also built a position in the Chinese renminbi, which remains less sensitive to global risk sentiment and brings decorrelation.