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Carmignac Investissement: Letter from the Fund Manager
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Over the period, Carmignac Investissement recorded a performance of -0.5%, in line with its reference indicator (-0.5%).
Market environment during the period
The S&P 500 peaked on July 31, but fell by approximately 6% by the end of the quarter. The main characteristics of this equity market reversal are the following:
- Valuations have been under pressure following the rise in rates: S&P 500 price/earnings ratio (1-Year forward) has dropped from 20x to 18x. However, at the same time, earnings estimates have held steady.
- The “Big Tech 7”3 that have been driving the market since the beginning of the year are no longer providing strong leadership. This, too, is a valuation story.
- From a sector point of view, following the sharp move in rates, bond proxies (utilities and real estate) have performed poorly. At the opposite end of the spectrum, energy has benefited from the resurgent oil price, while defensive healthcare performed relatively well.
How did we fare in this context ?
During the period, the absolute performance of the Fund suffered from the market correction as well as from some individual convictions. Hermes was down 13% over the quarter after a strong performance since the beginning of the year, penalized by higher rates and decelerating growth in China and Europe. Block, the merchant payments innovator, was also down over the quarter as the company weathered a series of setbacks, including a 48-hour outage on its Square payments app, and the sudden departure of an executive weeks later.
However, despite a negative backdrop for equity markets we managed to generate alpha over the quarter mostly thanks to our stock selection in Healthcare (Novo Nordisk and Eli Lilly) as well as some companies like UBS, Schlumberger and Alibaba.
Outlook
For equity markets, the two key factors to watch for the rest of the year are the rates and earnings dynamics.
On the rates front, the upward pressures on long term rates should ease as the deceleration of the economic cycle is gaining traction and the end of the hiking cycle is finally in sight (even more so as the past weeks’ movements in bond yields are tightening financial conditions even further). Any relief on rates will be positive for equity valuations and therefore corporate earnings will once again become the differentiating factor. However, we believe 2024 earnings expectations may still be overly optimistic, leaving room for downward revisions. Higher interest rates take time to affect earnings – despite wage pressure, corporate margins remain historically high – so the sustainability of this is a question. At this point it seems we are likely to face downward revisions in earnings expectations.
In this environment, quality growth companies offering higher and stable profit margins over time, as well as powerful secular trends such as artificial intelligence (AI) and the fight against obesity should be performance differentiators.
The healthcare sector is still our main overweight in the fund with Eli Lilly as our largest holding. Over the quarter, we had further positive developments regarding weight loss drugs. During late-stage trial preliminary results, Eli Lilly’s comparable Novo Nordisk was able to show a 20% reduction in cardiovascular events, i.e. heart attacks / strokes, for people treated with weight loss drugs vs. a placebo. These results are derisking the forward adoption curve for these drugs, expanding the addressable market that we estimate could reach $100bn in peak sales by the early 2030s.
To diversify our portfolio and to adapt to a stickier inflationary/higher interest rate backdrop than over the previous decade, we maintain an exposure to growth companies but within a wider set of sectors. Over the last year, we have reinforced our investments in the industrial sector in which we are very selective: avoiding short cycle exposure to favor long cycle plays. Airbus, the leading supplier in a secularly growing commercial aerospace market, is our biggest weight in the sector. A tight aircraft supply market given strong structural travel trends will provide a solid demand backdrop as Airbus ramps up production at a higher margin than during the pre-COVID era.
2Reference indicator: MSCI AC WORLD NR.
3Big Tech 7 : Alphabet, Apple, Amazon, Meta, Microsoft, Nvidia and Tesla
Carmignac Investissement A EUR Acc
- Recommended minimum investment horizon
- 5 years
- Risk indicator*
- 4/7
- 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
- 4,00% 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
- 1,50% 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 once performance since the start of the year exceeds that of the reference indicator and if no past underperformance still needs to be offset. 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
- 1,09% 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 Investissement | 10.4 | 1.3 | 2.1 | 4.8 | -14.2 | 24.7 | 33.7 | 4.0 | -18.3 | 18.9 |
| Reference Indicator | 18.6 | 8.8 | 11.1 | 8.9 | -4.8 | 28.9 | 6.7 | 27.5 | -13.0 | 18.1 |
| Carmignac Investissement | + 5.4 % | + 11.3 % | + 7.0 % |
| Reference Indicator | + 10.0 % | + 12.3 % | + 11.1 % |
Source: Carmignac at Nov 29, 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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35 years in the global equity arena, many more ahead
Marketing communication. Please refer to the KID/KIID, prospectus of the fund before making any final investment decisions. This document is intended for professional clients.
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