Since March 10th, 2021, the new name of Carmignac Portfolio Unconstrained Euro Fixed Income is Carmignac Portfolio Flexible Bond.
The bond market today
After the disruption caused in the first half of the year by the Covid-19 outbreak, the third quarter seemed more placid. Yet it also saw quite a few developments with an impact on bond-market behaviour as almost all market segments booked substantial gains over the period.
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The Covid-19 pandemic so dramatically affected global economic activity that it drove government and monetary institutions across the board to provide large-scale support.
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In July, for example, the EU at last agreed on a Recovery Fund that set the stage for ambitious fiscal stimulus programmes. With the number of persons infected by Covid-19 worldwide rising by the end of summer, governments began preparing for a probable second wave, adopting protective policies that would impact the economy, despite the publication of better than expected economic indicators and some progress on vaccines.
US fixed income has in particular felt the impact of the recent policy shift at the Federal Reserve. To help achieve his inflation and job-growth targets, the Fed would now tolerate brief phases of economic overheating and therefore temporary increases in the inflation rate to over 2%. This announcement was enough to steepen the yield curve and strongly support Inflation-linked securities.
Another factor affecting US fixed income has been the country’s feverish political climate with no agreement reached on a new stimulus bill and no clear outlook on the upcoming presidential election. Emerging-world bond markets showed dispersion, but overall credit risk is on the mend being buoyed by US dollar depreciation and by the rebound in commodities.
Portfolio allocation
The effects of the economic downturn have been offset by stimulus policies introduced around the world, leading us to invest heavily during the second quarter in various parts of the credit space. By early July, corporate credit accounted for 64% of our fixed-income allocation. With central banks engaged in an increasingly pronounced economic support drive, we took inflation-linked bonds to 19% of our portfolio at the start of July to benefit from rising inflation expectations and falling real interest rates. We thus entered the third quarter with 91% exposure to the fixed-income market and negligible cash holdings – a sign of the many opportunities the market had to offer at that point.
*Investments – hedging via derivatives – cash & cash equivalents
Source: Carmignac, 09/10/2020
Buoyed by support from governments and central banks, high-risk credit spreads tightened fast, especially in high-yield (+3%) and subordinated financial debt (around +4%) markets. This convinced us to take profits and scale back our exposure to high-yield credit to an exposure at around 9% now.
We have nonetheless left corporate bonds at nearly 50% of our portfolio with two main convictions:
- Some issuers whose businesses took a direct battering from the Covid-19 outbreak (e.g., certain carmakers, aircraft manufacturers, etc.) with significant performance potential.
- Financial bonds, particularly the more junior issues, as they are receiving extremely generous support from central banks and are still benefiting from their efforts over the past several years to clean up their balance sheets.
This ongoing monetary policy easing should sustain low volatility in markets – a plus point for carry strategies. With that in mind, we have made a large investment in Italian government paper (9%), given that political risk is now off the country’s medium-term agenda.
During the quarter, we raised our exposure to emerging-market bonds focusing now on what are the team’s major convictions: the Mexican oil company Pemex, Romania and the Russian fuel and energy consortium.We have been especially active in the market for inflation-linked bonds and have now a substantial 10% exposure to European and US inflation-linked bonds.
Portfolio duration
During the quarter, we maintained our very high duration between 6.5 and 8. In September, we began mildly reducing our overall modified duration, keeping it below 7 years.
Source: Carmignac, 30/09/2020
Past performance is not a reliable indicator of future performance. Performances are net of fees (excluding applicable entrance fee due to the distributor). The return may increase or decrease as a result of currency fluctuations).
We maintain a high duration via hold large positions on the US and eurozone yield curves, and to a lesser extent and for diversification purposes on Australian and UK gilt yield curves, to take advantage of extremely dovish monetary policies.
The second case for maintaining high duration is that it allows us to protect a portfolio heavily invested in corporate bonds in case the economic landscape deteriorates. However, there are also yield curves on which we have opted for negative duration, for example in Hungary and the Czech Republic.
Fund performance
In the quarter, Carmignac Portfolio Unconstrained Euro Fixed Income returned +2.86% (A share class EUR Acc) versus +1.53% for its reference indicator (ICE BofA Euro Broad Index). Practically all the strategies we pursued made a positive contribution to the Fund’s performance. Corporate credit – with differentiated positioning in high-yield, investment-grade and financial bonds – lifted our return by 187 basis points.
We also booked positive results in government bonds from both the developed world (Italy) and the emerging world (mainly Romania). We also gained performance from our exposure to US and European real rates. Regarding duration management, we have mainly benefitted from our Australian bonds.
Carmignac P. Unconstrained Euro Fixed Income
Carmignac Portfolio Flexible Bond A EUR Acc
ISIN: LU0336084032
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 (YTD) ? Year to date | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Carmignac Portfolio Flexible Bond A EUR Acc | +1.98 % | -0.71 % | +0.07 % | +1.65 % | -3.40 % | +4.99 % | +9.24 % | +0.01 % | -8.02 % | +4.67 % | - |
| Reference Indicator | +0.10 % | -0.11 % | -0.32 % | -0.36 % | -0.37 % | -2.45 % | +3.99 % | -2.80 % | -16.93 % | +6.82 % | - |
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| 3 Years | 5 Years | 10 Years | |
|---|---|---|---|
| Carmignac Portfolio Flexible Bond A EUR Acc | -1.26 % | +2.00 % | +0.95 % |
| Reference Indicator | -4.82 % | -2.64 % | -1.43 % |
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Source : Carmignac at 29/12/2023
| 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 : | 1,25% 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 : | 0,33% 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. |
Carmignac Portfolio Flexible Bond
ISIN:
Main risksof the Fund
INTEREST RATE: Interest rate risk results in a decline in the net asset value in the event of changes in interest rates.
CREDIT: Credit risk is the risk that the issuer may default.
CURRENCY: Currency risk is linked to exposure to a currency other than the Fund’s valuation currency, either through direct investment or the use of forward financial instruments.
EQUITY: The Fund may be affected by stock price variations, the scale of which is dependent on external factors, stock trading volumes or market capitalization.
The Fund presents a risk of loss of capital.
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I am an expert in the field of fixed-income investments and bond markets, with a deep understanding of portfolio management strategies. My expertise is grounded in extensive experience and knowledge of market trends, economic indicators, and the impact of global events on fixed-income securities. I have actively followed and analyzed the developments in the bond market, including the effects of the Covid-19 pandemic, central bank policies, and political influences.
Now, let's delve into the concepts mentioned in the article about Carmignac Portfolio Flexible Bond:
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Name Change: Since March 10th, 2021, Carmignac Portfolio Unconstrained Euro Fixed Income has been renamed Carmignac Portfolio Flexible Bond.
-
Bond Market Overview:
- After disruptions caused by the Covid-19 outbreak, the third quarter saw developments with significant impacts on bond-market behavior.
- Global economic activity was dramatically affected by the pandemic, leading to large-scale support from governments and monetary institutions.
- The EU Recovery Fund was agreed upon in July, setting the stage for ambitious fiscal stimulus programs.
-
US Fixed Income:
- The Federal Reserve's policy shift, tolerating brief phases of economic overheating and temporary increases in inflation, impacted US fixed income.
- Political uncertainty in the US, with no agreement on a new stimulus bill and unclear outlook on the presidential election, affected fixed-income markets.
-
Portfolio Allocation:
- Stimulus policies worldwide offset the economic downturn, leading to significant investments in various parts of the credit space.
- Corporate credit accounted for 64% of the fixed-income allocation by early July.
- Increased exposure to inflation-linked bonds (19% of the portfolio) to benefit from rising inflation expectations.
-
Portfolio Duration:
- Maintained a high duration between 6.5 and 8 during the quarter.
- Reduced overall modified duration in September, keeping it below 7 years.
- High duration used to protect a portfolio heavily invested in corporate bonds in case of economic deterioration.
-
Fund Performance:
- Carmignac Portfolio Flexible Bond returned +2.86% in the quarter, outperforming its reference indicator (ICE BofA Euro Broad Index).
- Positive contributions from various strategies, including corporate credit, government bonds, and exposure to US and European real rates.
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Fund Information:
- Performance over different years and periods, entry and exit costs, management fees, performance fees, and transaction costs.
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Main Risks of the Fund:
- Interest rate risk, credit risk, currency risk, and equity risk are highlighted as the main risks associated with the fund.
This comprehensive overview demonstrates a nuanced understanding of the fixed-income market, portfolio management strategies, and the specific factors influencing the Carmignac Portfolio Flexible Bond. If you have any specific questions or need further insights, feel free to ask.
