Carmignac P. Flexible Bond: Letter from the Fund Managers
In the first quarter of 2025, Carmignac Portfolio Flexible Bond posted a net performance of +2.89% for the A shareclass, while its benchmark1 was down -0.75%.
The bond markets today
In the same way as at the end of 2024, volatility was still a major issue on the fixed income markets at the start of the year. However, the trend has been reversed in the dynamics of the different regions, with an upward revision of the growth outlook for the euro zone, while the supremacy of the US zone has gradually been called into question overall. The common denominator in these divergent trajectories was undeniably linked to the Trump administration's assumption of power at the head of the world's leading power. The latter has indeed stifled investors' excessive optimism with the possibility of widespread tariffs, but also with a more isolationist outlook on interactions with former Western allies. In addition to raising fears of a reduction in the purchasing power of American consumers and a rise in inflation in the US in the future, this change of course in US policy has also had the effect of creating a need for greater independence on the part of other NATO member countries in order to ensure their defense needs in a more independent manner. The announcement of a massive investment plan in Germany and the abandonment of measures to curb indebtedness followed by other defense plans by its European neighbors (France, Spain, Sweden, etc.) boosted the growth prospects of the zone and consequently the level of long-term rates. The latter therefore tightened by +37 bp on the old continent (German 10-year rate) in contrast to their US counterparts, which fell by -36 bp during the quarter due to increased fears over the ability of the American consumer to absorb the future impact of more restrictive customs barriers. The central banks did not spring any major surprises during the observation period, with two cuts for the European Central Bank and a continuation of the pause in the Federal Reserve's rate cut cycle. On the other hand, the two institutions revised their inflation outlooks at the end of 2025 upwards to +2.3% for the euro zone and +2.7% for the United States respectively. Finally, credit assets suffered from the return of volatility at the end of the quarter with a widening of credit spreads of +39bp over the period on the Itraxx Xover index.
Asset allocation
At the start of the year, our strategy fully benefited from its flexible management mandate to deliver a positive performance despite an unfavorable configuration in the bond markets. Indeed, the fund delivered a performance of +2.89% over the quarter (share class A EUR Acc) against -0.75% for its benchmark indicator, with the best contributor to this outperformance being the interest rate hedging strategies. Our strong preference for US rates at the beginning of the year over their European counterparts was an important factor contributing to performance, particularly at the time of the announcement of the German investment plan, which generated an upward surge in rates on the old continent. On the contrary, US rates benefited from the gradual deterioration of leading indicators, which increasingly incorporate concerns related to the potential evolution of customs barriers. On the other hand, we also benefited from the positive contribution of our inflation-indexed instruments, which appreciated with the upward revision of future inflation prospects among central bankers but also in leading indicators. We adopted a dynamic management of modified duration during this first quarter, fluctuating between 0.4 and 3.3 through optional strategies. We closed the quarter at the upper end of this range at 3.3 following the increased sensitivity to European rates at the end of the period. We also gradually reduced our exposure to risky assets in March by reducing our weighting in high-yield credit and subordinated financial bonds, and by strengthening our credit hedges.
Outlook
The current environment presents many uncertainties arising from the decisions of the Trump administration, which could result in more volatility in risky assets. This is all the more worrying as the valuation levels on carry assets are moving in a high range, leaving little prospect of appreciation in the future. The change in policy across the Atlantic is also a catalyst for inflation through a strong stimulation of consumption in the short term and the prospect of less fluidity in trade in the longer term. Finally, the imbalance between supply and demand is expected to widen even more sharply in the future, with the isolationist policies and defense or infrastructure plans of various states creating a negative environment for long-term rates. We are therefore maintaining a cautious position in terms of modified duration by favoring inflation-indexed assets that have the potential to appreciate in view of their valuation and geopolitical outlook. Finally, we favor defensive assets and hedging strategies in an environment where the level of remuneration is now less accommodating on risky assets.
Source: Carmignac as at 31/03/2025. A EUR Acc shareclass, code ISIN: LU0336084032.
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
- 1,22% 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
- 0,35% 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 | 0.1 | 1.7 | -3.4 | 5.0 | 9.2 | 0.0 | -8.0 | 4.7 | 5.4 | 2.9 |
| Reference Indicator | -0.3 | -0.4 | -0.4 | -2.5 | 4.0 | -2.8 | -16.9 | 6.8 | 2.6 | -0.8 |
| Carmignac Portfolio Flexible Bond | + 3.5 % | + 3.8 % | + 1.2 % |
| Reference Indicator | - 1.5 % | - 1.6 % | - 1.3 % |
Source: Carmignac at Mar 31, 2025.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).
Reference Indicator: ICE BofA Euro Broad Market index
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