Carmignac P. Global Bond: Letter from the Fund Manager
Carmignac Portfolio Global Bond has realised a Q2 performance of -0.65% (A EUR Acc share), and it outperformed its reference indicator1 (JP Morgan Global Government Bond Index (EUR)), which delivered -1.18%.
The bond markets today
In the United States, we are finally witnessing a deceleration in economic growth following three consecutive quarters of better-than-expected results, as well as a gradual normalisation of the labor market. Furthermore, there are indications that inflationary pressures are subsiding, particularly evident in the June data. Due to the recent macroeconomic indicators, there is a growing possibility of an earlier-than-anticipated rate cut by the Federal Reserve in September. Speaking of which, and when examining the movement of US treasuries, we observed an increase in yields from 4.2% as of end of March to 4.7% in mid-April, followed by a downward move to 4.4% by the end of Q2 (still finishing 20 bps above end of March).
In the Eurozone, economic growth continues to be timid, while inflation is experiencing a downward trend; although, it is worth noting that services inflation tends remain sticky. As a result, the European Central Bank (ECB) decided to lower interest rates by 25 basis points, following the example set by the Swiss National Bank and its Swedish counterpart. Furthermore, the outcome of the French elections has introduced a significant amount of volatility and uncertainty regarding the future direction of the Eurozone.
In fact, political risk took center-stage during Q2, especially in the EM world. The latter, lead to increased volatility in emerging markets such as India, Mexico, and South Africa. The elections in these countries led to excessive market reactions, causing significant impacts on local interest rates, currency exchange rates, and external debt spreads, which subsequently spilled over to other emerging market economies.
Local currency EM debt, particularly in Latin America, suffered initially due to the adverse effects of the US rate increase during the first half of the quarter, and later faced challenges due to local events such as the elections in Mexico. However, the high real rates in these countries and the normalization of election-induced volatility are expected to benefit these rates in the long run. The USD remained stable over the period despite.
Fund performance
Carmignac P. Global Bond had a negative absolute performance in Q2 2024, but it outperformed its reference index. Our selection of corporate credit securities, including structured credit investments, significantly contributed to performance. However, the developed market countries duration had a negative impact on the fund's absolute performance.
Additionally, in our emerging market debt strategies, particularly in local currency names such as Brazil, India or South Korea contributed negatively to the fund's performance. The local hard currency emerging debt positions had a neutral contribution. However, our currency strategies had a negative impact on performance this quarter with notably the Japanese Yen having a negative contribution. Nevertheless, our long positioning on the USD was profitable for the fund.
Outlook
While growth has shown resilience so far, it seems unrealistic to expect the US economy to continue growing indefinitely at a pace twice its potential. Therefore, in the current context, with a certain slowdown in the US economy, we are maintaining a relatively high duration of around 4.5. We have also reinforced our view on a steepening of the yield curve, as short-term rates are expected to outperform in a scenario of cyclical inflation. As a result, we have strengthened our buying strategies on the short end of US rates. Additionally, in the framework of the European yield curve, we have implemented steepening strategies, particularly by initiating short positions on French Treasury bonds (OATs).
Regarding emerging market local currency debt, the fund continues to favour countries like Mexico and Brazil, where short-term real rates remain extremely high. We have also taken advantage of the correction in Mexican local rates following the elections and have strengthened our buying position to benefit from their rebound.
In terms of currencies, the fund reinforced long commodity-related positions on the Norwegian krone, Chilean peso, Brazilian real. The fund continues to have a long position on emerging market debt in hard currencies, in the EMEA region and Latin America.
Source: Carmignac, Bloomberg, 30/06/2024. Performance of the A EUR Acc share class ISIN Code A EUR Acc: LU0336083497.
1Reference Indicator: JP Morgan GBI Global (EUR). Past performance is not necessarily indicative of future performance. The return may increase or decrease as a result of currency fluctuations, for the shares which are not currency-hedged. Performances are net of fees (excluding possible entrance fees charged by the distributor).
Marketing communication. Please refer to the KID/prospectus of the fund before making any final investment decisions.
Carmignac Portfolio Global Bond
A global, flexible and macroeconomic approach to fixed income marketsDiscover the fund pageCarmignac Portfolio Global 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
- 2,00% 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
- 1,36% 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 Global Bond | 13.8 | 3.3 | 9.5 | 0.1 | -3.7 | 8.4 | 4.7 | 0.1 | -5.6 | 3.0 |
| Reference Indicator | 14.6 | 8.5 | 4.6 | -6.2 | 4.3 | 8.0 | 0.6 | 0.6 | -11.8 | 0.5 |
| Carmignac Portfolio Global Bond | - 0.5 % | + 0.2 % | + 2.3 % |
| Reference Indicator | - 3.5 % | - 2.4 % | + 1.0 % |
Source: Carmignac at Oct 31, 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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