Carmignac Portfolio Long Short European Equities: Letter from the Fund Manager
![[Management Team] [Author] Heininger Malte](https://carmignac.imgix.net/uploads/NextImage/0001/18/%5BManagement-Team%5D-Heiniger-Malte.png?auto=format%2Ccompress&fit=fill&w=3840)
Dear investors,
Our fund delivered a quarterly performance of -2.26%, in the F EUR share class, net of fees, while the year-to-date performance stands at +16.54% at the end of September.
Despite the negative performance for the quarter, the portfolio benefited from strong contributions from both our Long and Short ideas.
On the long side, our core positions in SAP and Meta, and our trading positions in Deutsche Telekom and Fresenius performed well with strong Q2 numbers and positive earnings momentum.
Our short positions suffered from the sudden market recovery, particularly our Tech shorts like Salesforce and Micron. At the same time, our Core Long position in Nova showed poor performance being down around 11% after two strong quarters at the beginning of the year.
The Carmignac Portfolio Long Short European Equities strategy attributions by bucket were:
| Core Longs | -3.19 | +21.33 |
| Trading Longs | +2.78 | +5.06 |
| Relative Value/Special Sit | +0.05 | +0.21 |
| Alpha Shorts | -3.23 | -2.89 |
| Hedging | +0.04 | -4.25 |
Q3 was a very volatile quarter. While most markets ended the quarter higher, the headline numbers masked some massive turmoil intra-quarter. The SOX dropped 25% from its July peak, the Nasdaq had an almost 14% pullback and the European market had a close to 10% correction. Meanwhile, the Topix dropped 12% in a day in early August, while the VIX hit its March 2020 highs.
While the strategy gave back some gains in early July after a very strong June, the second half of July and the month of August were positive. The reason for our portfolio's pullback early July was mainly led by our semiconductor positions. We started the year with a fairly constructive view on the sector, as the industry was coming out of a severe downturn with several structural and cyclical tailwinds, which gave us some constructive views on several parts of the value chain.
As the year progressed, there started to appear cracks in many aspects of the bull case, particularly for the wafer fab equipment players. Firstly, the expected second half cyclical recovery of the traditional semiconductor business did not materialize. The sector experienced continued weakness and inventory built in the automotive, industrial, PC & Mobile end markets. Secondly, following these first signs of cracks appearing in the sector, delays started to appear on many of the politically driven mega fab projects due to supply chain issues, staff shortages, planning delays, etc.
Furthermore, the technological issues of both Intel & Samsung (2nd & 3rd largest capex spenders) started to become more apparent, with both firms struggling with the note transition and severe technological shortcomings that led to capex cuts. Lastly, we saw a lot of the slack of demand for semiconductor equipment being picked-up by China, which accounted for close to 50% of sales for many of the large equipment companies in Q2. This level was unsustainable and driven by hording and a potentially risky customer base, due to increased political tensions and the potential for further export controls. We exited most of our semiconductor exposure in early July for these reasons.
That said, we remain excited about the prospects of artificial intelligence (AI) and we like to keep some exposure to the theme, but effectively it is a fairly narrow part of the industry and a limited number of players benefit from it, namely the GPU & Datacentre space. However, we see big dispersion between the winners and the losers, while many other parts of the sector are struggling for various reasons.
The overall book is fairly defensively positioned right now with most of our large Longs in the Software, Healthcare, Insurance and Telecommunications sectors where we find many attractive, company specific opportunities. Looking at the earnings trajectories and the performance of many of the popular European blue chips, the picture is not very encouraging and there were many pitfalls. Nestle hit a new multi-year low and is down 30% from the peak, LVMH is down 30% from last year’s highs, ASML dropped 35% since the summer, L’Oreal is down more than 20% since Q2 and Novo Nordisk had a 25% pullback since Q2 as well.
Overall, we consider the market attractive from a strong stock picking perspective with significant amount of dispersion and a great idea flow on both longs and shorts.
Carmignac Portfolio Long-Short European Equities
A high-conviction long/short approach to European equitiesDiscover the fund pageCarmignac Portfolio Long-Short European Equities F EUR Acc
- Recommended minimum investment horizon
- 3 years
- Risk indicator*
- 3/7
- 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
- We do not charge an entry fee.
- Exit costs
- We do not charge an exit fee for this product.
- Management fees and other administrative or operating costs
- 1,16% of the value of your investment per year. This estimate is based on actual costs over the past year.
- Performance fees
- 20,00% max. of the outperformance if the performance is positive and the net asset value exceeds the high-water mark. 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
- 0,83% 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 Long-Short European Equities | 2.3 | -7.7 | 10.0 | 16.7 | 5.1 | 0.3 | 7.4 | 13.6 | -5.7 | 0.7 |
| Carmignac Portfolio Long-Short European Equities | + 2.8 % | + 7.7 % | + 5.7 % |
Source: Carmignac at 31 Oct 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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