Carmignac P. Flexible Bond: Letter from the Fund Managers
In the third quarter of 2024, Carmignac Portfolio Flexible Bond posted a net performance of +1.93% for the A shareclass, while its benchmark1 was up +3.72%.
The bond markets today
The third quarter was marked by a gradual shift from inflationary fears to a resurgence of concerns about growth prospects. The main source of concern during the quarter was the US job market, which remains the crucial determinant of the robustness of the American consumer. Indeed, the unemployment rate across the Atlantic rose to 4.3% in August (before declining slightly to 4.2% in September), with job creation in the private sector slowing, leading investors to fear a hard landing for the economy. Against this backdrop of growing concern, the Federal Reserve adopted an accommodating tone with investors, announcing that the time had come to cut rates at the Jackson Hole symposium and then proceeding to ease its key rate by -50bp at its September meeting. However, the US economy continues to outperform its historical trend, with retail sales continuing to rise and growth revised upwards to 3% at the end of the second quarter. The Eurozone, meanwhile, remains mired in a sluggish pace of growth, penalized by the downturn in manufacturing activity in Germany and France, which had previously been the main drivers of the region. Despite core inflation continuing to gravitate above the European Central Bank's target, the latter lowered rates for the second time this year by -0.25% against this backdrop of weak growth. As a result, short rates eased sharply over the quarter, with the US 2-year rate compressing by -114bp and its German counterpart easing by -90bp. In an environment of political uncertainty and government budgetary slippage, yield curves steepened on both sides of the Atlantic, marking the end of a long period of yield curve inversion. Finally, it should be noted that investors' concerns about economic growth did not have a negative impact on credit assets, which saw their credit margins squeezed over the quarter.
Asset allocation
Against a backdrop of falling interest rates and tightening credit spreads, our strategy delivered a positive absolute performance, but underperformed its benchmark. We believe that the changes seen on the fixed-income markets during the quarter are excessive, given the resilience of US growth and the risks of a resurgence of inflation. Indeed, while the decline in commodity prices has so far fuelled the disinflationary movement and the trickle-down effect of rate easing, we believe that current geopolitical pressures and the re-acceleration of certain inflationary components are factors that the market did not anticipate. Against this backdrop, we have maintained a low interest-rate sensitivity, with a preference for short rates and short positions on longer maturities. We have also maintained our credit hedges, which provide protection in the event of a return to risk aversion. On the other hand, we continued to trim our short position in Japanese sovereign yields following the second rate hike by the Japanese central bank, and increased our exposure to Brazilian sovereign debt.
Outlook
We remain in line with a soft landing scenario across the Atlantic, where the US consumer continues to show resilience as we enter a cycle of easing financial conditions. The market is now expecting a sequence of sizeable rate cuts, while the yield curve is still underestimating the fiscal indiscipline of economic agents. What's more, market expectations of a slowdown in inflation are relatively complacent for the future, which does not take into account the unfavorable geopolitical situation and the volatility of certain consumer price components. This cocktail of prospects for aggressive rate cuts and inflation evolving below the central banks' target in the future seems very enthusiastic to us, arguing in favor of maintaining a degree of prudence on the interest-rate sensitivity front and exposure to risky assets. We are therefore keeping our portfolio recipe unchanged, combining inflation-indexed strategies, exposure to short rates and high carry, which should enable us to navigate an environment that could prove less virtuous and more volatile in the future on the fixed-income markets.
Source: Carmignac as at 30/09/2024. A EUR Acc shareclass.
1ICE BofA Euro Broad Market Index (coupons reinvested). On 30/09/2019 the composition of the reference indicator changed: the ICE BofA ML Euro Broad Market Index coupons reinvested replaces the EONCAPL7. Performances are presented using the chaining method. On 10/03/2021 the Fund’s name was changed from Carmignac Portfolio Unconstrained Euro Fixed Income to Carmignac Portfolio Flexible Bond.
Past performance is not necessarily indicative of future performance. The return may increase or decrease as a result of currency fluctuations. Performances are net of fees (excluding applicable entrance fee acquired to the distributor).
Carmignac Portfolio Flexible Bond
A flexible solution aiming to capture bond opportunities globallyDiscover the fund pageCarmignac Portfolio Flexible Bond A EUR Acc
- Recommended minimum investment horizon
- 3 years
- Risk indicator*
- 2/7
- SFDR - Fund Classification**
- Article 8
*Risk Scale from the KID (Key Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time. **The Sustainable Finance Disclosure Regulation (SFDR) 2019/2088 is a European regulation that requires asset managers to classify their funds as either 'Article 8' funds, which promote environmental and social characteristics, 'Article 9' funds, which make sustainable investments with measurable objectives, or 'Article 6' funds, which do not necessarily have a sustainability objective. For more information please refer to https://eur-lex.europa.eu/eli/reg/2019/2088/oj.
Main risks of the fund
Fees
- Entry costs
- 1,00% of the amount you pay in when entering this investment. This is the most you will be charged. Carmignac Gestion doesn't charge any entry fee. The person selling you the product will inform you of the actual charge.
- Exit costs
- We do not charge an exit fee for this product.
- Management fees and other administrative or operating costs
- 1,20% of the value of your investment per year. This estimate is based on actual costs over the past year.
- Performance fees
- 20,00% when the share class overperforms the Reference indicator during the performance period. It will be payable also in case the share class has overperformed the reference indicator but had a negative performance. Underperformance is clawed back for 5 years. The actual amount will vary depending on how well your investment performs. The aggregated cost estimation above includes the average over the last 5 years, or since the product creation if it is less than 5 years.
- Transaction Cost
- 0,38% of the value of your investment per year. This is an estimate of the costs incurred when we buy and sell the investments underlying the product. The actual amount varies depending on the quantity we buy and sell.
Performance
| Carmignac Portfolio Flexible Bond | 2.0 | -0.7 | 0.1 | 1.7 | -3.4 | 5.0 | 9.2 | 0.0 | -8.0 | 4.7 |
| Reference Indicator | 0.1 | -0.1 | -0.3 | -0.4 | -0.4 | -2.5 | 4.0 | -2.8 | -16.9 | 6.8 |
| Carmignac Portfolio Flexible Bond | + 0.7 % | + 2.0 % | + 1.2 % |
| Reference Indicator | - 3.1 % | - 1.6 % | - 1.1 % |
Source: Carmignac at 29 Nov 2024.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).
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