Carmignac Investissement: Letter from the Fund Manager

During the second quarter of 2024, Carmignac Investissement posted a performance of +3.75%, in line with its reference indicator² (+3.72%). Since the beginning of the year, the Fund is up +21.41% compared to its index² (+14,72%).

The second quarter saw attention shifting from Central Banks (with the first cuts by major Developed Markets Central Banks since COVID finally materializing from the ECB, the Riksbank and the Bank of Canada) to political risk coming back to the forefront (with a total 1.5bn of citizens casting ballots from India to Europe – and most notably general elections in France, the UK and Mexico; and the US elections starting to gain traction).

In such a context, US equities continued their upward trend initiated last autumn while European and emerging markets petered out during Q2. Earnings revisions have been the main driver of returns but most of the rally continued to come from a handful of stocks most notably in artificial intelligence (AI) & tech related themes. The Magnificent Seven, led by NVIDIA (149% year to date), now accounts for more than 60% of the US market’s gains.

In Asia, Taiwan emerged as the leading market, driven by its dominant technology exposure. India experienced a recovery in June following surprising election results, which tempered Prime Minister Modi's political powers. Chinese equity markets initially received a boost from government measures aimed at supporting the real estate sector. However, these gains were short-live as structural challenges (muted investor sentiment and consumer spending, real estate overhang) resurfaced.

European markets significantly underperformed during the quarter, as political turmoil in France in June created uncertainties over the Old Continent.

Over the quarter, the performance of the portfolio was primarily driven by our exposure to Emerging Markets as well as our US tech stocks. The increasing demand for AI has resulted in several large technology companies in the portfolio achieving record high stock prices. Our gains were not limited to Nvidia as we have diversified our exposure across the AI value chain, especially in Asia and niche companies with high return potential. These changes were rewarded, with companies such as TSMC (Taiwan) and Hynix Semiconductor (South Korea) being among the top contributors.

Another main contributor to the portfolio was Interglobe Aviation (Indigo), an Indian low-cost carrier that has become the dominant player in the country with over 60% market share.

However, there were some negative impacts on the portfolio due to specific stock issues. For instance, Airbus stock experienced a significant decline as the company warned about the pace of aircraft deliveries and ongoing troubles in its Space division.

On April 8, 2024, Kristofer Barrett took over management of the Carmignac Investissement strategy. Kristofer is a seasoned, active stock picker. His proven approach of combining in-depth company research with pragmatic macro analysis has resulted in an outstanding long-term track record. Since taking over, he has carefully reshuffled the portfolio to align with his investment process and the current market conditions.

The Fund is currently operating in the following environment: US stocks have been reaching new highs, but this trend is limited to a narrow range of companies. We are closely monitoring whether these record highs are justified by future earnings potential. In the broader tech sector, the giants are experiencing strong earnings growth due to the successful progress of cloud migration and digitalization. Within the narrower technology sector, the AI trade has continued unabated with most technology stocks exposed to AI usage making highs. We are assessing the extent to which AI chips are being utilized in productive endeavors that generate value and profits for end users.
On the other hand, the broader economy appears to be slowing down, which is reflected in stock prices outside of the digital sector, where prices are stagnant as earnings power is still up to debate. Despite this, there are still expectations for a second half recovery of these stocks, which increases the risk of potential disappointment.

Against this backdrop, we adopt a more balanced approach, favouring stocks with high earnings and reducing investments in stocks like Nvidia, where expectations have increased, in favour of a semiconductor exposure that sits in Asia with TSMC/Samsung/Hynix or in defensive segments such as US health insurance.
During the quarter, we have strategically reduced the Beta of our portfolio, increased the average market capitalization, and improved the financial metrics such as balance sheet and growth rate. This has resulted in a more robust portfolio that we expect is better equipped to withstand more challenging market conditions.