Carmignac Portfolio Grande Europe: Letter from the Fund Manager - Q4 2025

During the fourth quarter of 2025, Carmignac Portfolio Grande Europe (F share class) posted a positive return of +3.03%, below its reference indicator which rose +6.25%. Over the full year 2025, the Fund achieved a performance of -0.20%, underperforming its reference indicator which returned +19.39%.

Financial markets navigated a complex and often conflicting backdrop in 2025. The opening months were marked by heightened trade tensions, as the United States implemented sweeping tariff increases reminiscent of the 1930s. In Europe, as the year progressed, we saw a noticeable rotation from growth sectors to the outperforming value and domestic sectors.

The fourth quarter of 2025 saw continued strong momentum in European stocks, as the narrative shifted following rate cuts in the quarter with further cuts expected by the market in 2026, especially in the US. In addition, in Europe we started to anticipate the prospect of the previously announced large German fiscal spending program being deployed in 2026. The lingering effects of US-imposed tariffs earlier in the year faded as markets digested them, and the backdrop of clearer trade relationships helped reduce a key area of uncertainty. When we look at what is actually happening with company profits, though, it was a more subdued picture whereby profits barely grew 1% on average for European stocks, although we saw pockets of strength in IT, Financials and Industrials. With high expectations for profits growth in 2026 already assumed, investors will want to see some evidence of these being met soon into 2026 to justify recent price moves.

Our fund significantly lagged the benchmark during 2025. The largest reason for this continued to be the pronounced strength of sectors where we have little exposure such as Banks and Insurance both of whom continue to rally ahead of the market. Similarly, the commodity related Materials sector also rose strongly and like the Financials sector, is driven by the risk-on reflationary narrative in global markets.

In Q4, the Healthcare sector recovered dramatically rising 11% after several drug companies announce agreements with the Trump administration on capital investment in the US as well as drug pricing initiatives. This rally was reserved for a handful of the large diversified pharmaceutical names and did not include our preferred name Novo Nordisk which continued to suffer from poor execution with disappointing prescription growth of their weight loss product.

Artificial Intelligence (AI) continued to be the driving theme behind global markets with very strong performances from many companies involved or adjacent to it, especially semiconductor stocks. Up to the start of the fourth quarter ASML the provider of key lithography equipment which enables more and more sophisticated chip designs to be made had not participated much, owing to recent quarters’ order book unpredictability caused by some difficulties at customers Intel and Samsung. However, this changed in the fourth quarter with expectations that the world’s largest chip maker TSMC as well as memory chip manufacturers like SK Hynix and Micron would need to boost capacity to meet rocketing demand from data centres. Consequently, ASML rose 11% in the period and remains the fund’s largest holding at about 6% of the fund. Other than ASML in Europe there are few names benefiting directly from AI. Electrical equipment providers like Schneider are also seeing accelerated demand from data centre build out but despite benefiting from this, as well as the ongoing need to upgrade electrical infrastructure globally, the stock was subdued falling around 1%. This did not adequately reflect the company’s solid Q3 results nor a positive Capital Markets Day where medium term targets of 7-10% organic growth to 2030 and margin increases were announced, which were above most analyst’s expectations. We expect the company’s consistent delivery to be rewarded in 2026.

In Healthcare, as mentioned above Novo Nordisk lagged over the period, but we are encouraged that the company has reached agreement with the US government over price for public channels Medicare and Medicaid. We expect the downward move in price to significantly improve volume of sales for Wegovy through the course of 2026. In addition, the approval of the first oral product for obesity in the Wegovy pill will likely be another significant driver of volumes and, as well as redressing the competitive balance between Novo and their arch rival Eli Lilly. As a result, we stick with Novo Nordisk despite last year’s poor performance. Elsewhere, in the Life science tool and equipment subsector, we are encouraged to hear further confirmation that the inventory of products built up at various company’s during the covid pandemic has been worked down, allowing suppliers like Sartorius to participate in manufacturing volume growth for biologic drugs. Having been hit hard during the last 3 years, we expect the company to return to low double digit profits growth from now on.

As well as our large exposures in IT and Healthcare, we made significant changes during the year to our fund. For instance, while most balance sheet financials do not meet our criteria, we have bought the handful of names that do, such as BBVA and Erste Bank – both of whom delivered positive returns for the fund over the period of 23% and 22%. In financials we also continue to like the direct-to-consumer investment platforms and our recent addition here, the German listed Flatexdegiro returned 31% in Q4 on ongoing customer growth on their platform. In addition, the names we added to participate in rising German government spending such as Bechtle and Kion rose 11% and 19% respectively in anticipation of improving sales prospects from 2026, with which we concur.

Over the past 12 months we have seen a huge. unprecedented rotation away from most of the high-quality stocks and sectors we typically favour. We believe this is a great opportunity for long-term investors. After the movements described above, many of the highest quality companies in Europe, if not the world, are trading on 10-year absolute and relative valuation lows.

We maintain our exclusive focus on companies demonstrating high sustainable profitability and reinvestment, and the best sustainability standards, as we believe these names will deliver the highest and most consistent long-term profit growth. The good news is that the recent pullback in the valuations of such companies offers the long-term investor an opportunity to add to holdings at attractive valuations, which we have been doing.