Carmignac Portfolio Emerging Patrimoine: Letter from the Fund Managers - Q2 2026

In the second quarter of 2026, Carmignac Portfolio Emerging Patrimoine delivered a strong performance of +10.81% vs +11.97% for the reference indicator, driven primarily by the strong performance of its equity investments, while local rates, hard currency debt and currencies also contributed positively to returns. Year-to-date the fund posted a performance of +14.20%, outperforming its reference indicator that was up 12.71%.

The second quarter of 2026 marked a sharp reversal from the risk-off environment that dominated the end of the previous quarter. As geopolitical tensions in the Middle East gradually eased following the interim agreement between the United States and Iran and the reopening of the Strait of Hormuz, Brent crude prices experienced their largest quarterly decline since 2020. The resulting moderation in inflation expectations supported a broad recovery across global financial markets and encouraged investors to refocus on the resilient fundamentals of emerging economies.

At the same time, emerging markets continued to benefit from supportive domestic dynamics. Inflation remained well contained across most countries, allowing central banks to maintain or prepare for more accommodative monetary policies. Political developments also became increasingly supportive, particularly in Latin America, where recent election outcomes in Peru and Colombia strengthened expectations of more market-friendly economic policies. Meanwhile, Asia remained the main structural growth engine for the asset class, supported by continued investment in artificial intelligence (AI), semiconductors and digital infrastructure.

Against this backdrop, emerging market equities extended their strong performance, led once again by North Asia. Taiwan and South Korea continued to outperform as companies across the semiconductor value chain benefited from sustained demand for AI-related infrastructure. More broadly, improving investor sentiment also supported domestic-oriented companies, particularly in India and selected Latin American markets.

Fixed income markets also recovered over the quarter. Lower oil prices and easing inflation concerns reinforced expectations that emerging market central banks would have greater flexibility to ease monetary policy. Local-currency debt performed particularly well in Central and Eastern Europe and Latin America, where declining bond yields and stronger currencies boosted returns. Hard-currency sovereign debt also benefited from broad credit spread compression, with high-yield issuers outperforming investment-grade sovereigns as investor risk appetite improved.

Emerging market currencies strengthened over the quarter, supported by attractive carry, improving risk sentiment and declining energy prices. Currencies from Central and Eastern Europe and Latin America led the rally, while several Asian currencies recovered towards the end of the quarter as the outlook improved for oil-importing economies.

Overall, the quarter reinforced our conviction that emerging markets continue to offer an attractive combination of resilient macroeconomic fundamentals, supportive structural growth trends and compelling valuations. While geopolitical uncertainty is likely to remain a source of volatility, we believe the asset class remains well positioned to outperform over the medium term.

During the second quarter, the Fund delivered a strong positive performance, supported primarily by its equity investments, while local-currency debt, hard-currency sovereign debt and currencies also contributed positively.

On the equity side, performance was driven primarily by our exposure to Asia, particularly South Korea. SK Square was the largest contributor over the quarter. As the holding company of SK Hynix, it benefited from the strong performance of the Korean memory semiconductor sector, while the market continued to recognize the value of its stake in SK Hynix and the company's commitment to reducing the holding company discount that has historically weighed on its valuation. Selected Indian holdings, notably Five-Star Business Finance, also contributed positively over the quarter, while Taiwan provided an additional source of returns.

Within fixed income, local-currency debt generated a positive contribution over the quarter. Performance was mainly driven by our exposure to EMEA local rates, with positions in South Africa, Poland and Hungary contributing positively. In Hungary, local bonds benefited from improving investor sentiment following the election of Peter Magyar. Latin America also added to performance, notably through our exposure to Colombian local government bonds.

Hard-currency sovereign debt also contributed positively. Performance was well diversified across both EMEA and Latin America, supported by improving investor sentiment and tighter credit spreads. In EMEA, our positions in Egypt, Côte d'Ivoire and Romania were among the strongest contributors, while Argentina and Colombia performed well in Latin America.

Currency allocation also contributed positively over the period. Performance was well diversified across regions, with EMEA currencies making the largest contribution, led by the Hungarian forint, the South African rand and the Egyptian pound. Latin American currencies also performed well, notably the Colombian peso. These gains were partly offset by the negative contribution from the U.S. dollar.

The main detractor over the quarter came from our credit hedging strategies. As credit spreads continued to tighten, our CDS positions on high yield weighed on performance. While these hedges reduced returns in a risk-on environment, they remain an important component of our portfolio construction and risk management framework.

Looking ahead, we remain constructive on emerging market assets, which we believe have entered a new multi-year cycle supported by stronger macroeconomic fundamentals, resilient earnings growth and still-attractive valuations. Despite the strong rally since the beginning of the year, emerging market equities continue to trade at a meaningful discount to their developed market counterparts, while global investors remain structurally under allocated to the asset class. Inflation has continued to moderate across most emerging economies, providing central banks with greater flexibility to ease monetary policy. The political backdrop has also become increasingly supportive, particularly in Latin America, where recent election outcomes in Peru and Colombia point towards a more investor-friendly policy environment, while Argentina continues to make remarkable macroeconomic progress. In Asia, structural growth remains underpinned by continued investment in AI, semiconductors and digital infrastructure, reinforcing our long-term conviction in the region. Against this backdrop, we believe emerging markets remain well positioned to outperform developed markets over the medium term, although geopolitical developments and trade negotiations are likely to continue generating periods of volatility.

Reflecting our strengthening convictions throughout the quarter, we increased the portfolio's equity exposure from around 10% at the beginning of April to approximately 35% at the end of June, while modified duration increased from around 130 basis points to nearly 280 basis points, primarily through a higher allocation to local-currency debt. These adjustments reflect our conviction that the current environment remains supportive for both emerging market equities and fixed income.

On the equity side, we continue to favour companies exposed to long-term structural growth trends, particularly across Asia's technology ecosystem. While remaining constructive on the AI investment cycle, we have become increasingly selective following the strong performance of memory-related stocks. We continue to favour companies positioned to benefit from the next phase of AI development, including semiconductor equipment, connectivity, power management and industrial automation. We also continue to diversify our sources of alpha through attractive domestic opportunities in Mexico and high-quality industrial companies in China.

Within fixed income, we increased our exposure to local-currency debt, particularly across Latin America and EMEA. In Latin America, we continue to favour Brazil and Mexico, while in EMEA we maintain high conviction in, Poland and Romania because the sharp retracement in oil prices has reduced inflationary pressures while local bond yields remain elevated, leaving significant room for yield compression. In hard-currency sovereign debt, we maintain our highest-conviction positions in Argentina and Côte d'Ivoire, while continuing to seek selective idiosyncratic opportunities offering attractive risk-adjusted returns.

We also strengthened our exposure to emerging market currencies during the quarter. We continue to favour high-conviction Latin American currencies, including Colombian peso and Brazilian real, alongside selected Central and Eastern European currencies such as the Hungarian forint. We have also increased our exposure to undervalued Asian currencies, notably the Thailand bath and Indonesian rupiah.

Finally, while our outlook remains constructive, we continue to maintain a disciplined approach to risk management. We retain credit protection through CDS indices and selected sovereign issuers, while maintaining exposure to inflation-linked strategies in Mexico and Poland, as well as European breakevens, to preserve the portfolio's resilience should inflationary pressures re-emerge.