Carmignac Portfolio Patrimoine Europe

March was marked by significant turbulence in global financial markets as investors grappled with macroeconomic uncertainties stemming from trade tensions and fiscal policy shifts in Europe.

Germany pivoted away from its conservative fiscal policy, reforming the "debt brake" to allow for higher deficits and unveiling a historic fiscal stimulus plan, which includes €500 billion in infrastructure investment over the next decade and increased defense spending.

Reciprocal tariffs and sector-specific trade measures continue to weigh on US and global growth prospects and related fears of rising inflation.

In this context, policy uncertainty burdens US stocks while Europe’s pivot to infrastructure and defense bolsters performance in related sectors.

The S&P 500 enters correction territory, losing more than 10% from its February peak, dragged down by technology and growth stocks.

The rest of the world outperformed the US but were down in Euro terms, as the Euro rebounded strongly.

Growth concerns drive US yields lower, while European yields rise on the back of the fiscal shift in Germany.

Gold rose again amid these uncertainties, while Latin American currencies benefitted from the weakness of the US dollar

In this environment, the Fund closed the month with a negative performance, underperforming its reference indicator.

The underperformance of the Fund was primarily driven by the weak performance of our long-term equity holdings.

Specifically, quality/growth stocks in Europe were adversely impacted by concerns over potential tariffs that could weigh on their earnings, as well as the outperformance of domestic stocks such as Industrials and defense-related companies.

Unfortunately, our hedging strategies did not perform sufficiently to offset this relative underperformance.

Similarly, while our low duration positioning helped us avoid losses from the sharp rise in German rates following Merz's announcement, it was not enough to compensate for the losses incurred on equities.

On a positive note, our exposure to gold and credit protection instruments (CDS) performed well over the month.

In Europe, the scale of defense and infrastructure spending programs points to higher growth, elevated inflation, and wider budget deficits. However, retaliation measures and an escalation of the trade war could temporarily dampen European growth.

Given this backdrop, we maintain our view that risk assets may experience heightened volatility, prompting us to adopt a more protective stance to safeguard absolute performance.

As a result, we are keeping our equity net exposure below the midpoint of our target range, while maintaining index options and credit protections through Xover.

Nonetheless, a slowing growth environment could create opportunities for our long-term equity investments.

In fixed income, we remain cautious, holding relatively low but positive duration.