Carmignac Portfolio Long-Short European Equities: Letter from the Fund Manager
Our fund delivered a quarterly performance of +6.1%, in the F EUR share class, net of fees, while the Stoxx 600 was down 24bps.
The portfolio benefited from strong contributions from both our Long and Short ideas. Our attributions by bucket for the quarter were:
| CORE LONGS | +6.77 |
| TRADING LONGS | -1.38 |
| RELATIVE VALUE/ SPECIAL SIT | +0.20 |
| ALPHA SHORTS | +2.99 |
| HEDGING | -0.71 |
On the long side, our core positions in SAP, Spotify, Nova Ltd, Schibsted and SK Hynix performed well with strong Q1 numbers and positive earnings momentum.
On the short side, the largest contributors came from Nike and Lululemon as our short thesis continued to play out. During the quarter, Nike reported a large profit warning, while Lululemon suffered from rapidly deteriorating fundamentals.
The breadth of the market continued to narrow this quarter, with a small number of thematically driven large cap stocks carrying the market, supported by strong numbers, while most of the stocks struggled.
If we take a step back and look at the Q1 earnings season, most companies had a disappointing start to the year which made guidance for many of them look backend loaded and dependent on a second half pick-up in growth, which looked less and less likely as the quarter progressed. Apart from segments exposed to semiconductors, AI or US mega projects, the weak trends were broad based across sectors (autos, chemicals, construction, consumer, luxury, cap goods, etc.). With that backdrop, our net exposure started to come down in June for bottom-up reasons, as we trimmed or exited long positions that were trading closer to fair value, while we found attractive, company specific new short ideas.
Looking at these bottom-up observations from a top-down view, they make sense. While the market had expected many sectors to roll over after the initial inflation and rates shock in 2022, the negative impact on corporate earnings never came, due to all the reasons we know – excess savings, fiscal stimulus, cheap refinancing during the low rate environment, record backlogs due to supply chain issues, shortages that lead to pricing power and overall an inflationary environment that helped nominal growth and corporate margins – while record low unemployment and wage increases kept consumption strong.
We are now starting to see the slow unwind of many of these tailwinds. On the consumer side, excess savings have been spent, while high interest rates and goods inflation put pressure on the consumer, particularly the lower income bracket. On the corporate side, the opening-up of supply chains led to the normalization of backlogs, while new orders declined, as order patterns/lead times normalized again and customers de-stocked. These trends happened while volumes remain fairly depressed due to the muted consumer spending.
While there were many complaints over the last two years on inflation and supply chain constraints, most companies significantly benefitted from that environment. The creation of an artificial supply constraint combined with pricing power occurred while the higher interest rates had little impact on these companies, thanks to strong balance sheets and limited near term refinancing needs. On the flipside, as inflation now starts to fade at a time where the consumer is starting to struggle, most companies will be negatively affected as they are facing pressure on both volume and pricing, resulting in negative topline and margin trends. This new environment will be the new narrative for the second half of the year.
The only positive take on inflation coming down is that it finally opens the door for central banks to cut interest rates. That said, given the limited impact that higher rates had on corporate earnings or consumer behavior, it remains to be seen if that really overcompensates the negative effect of pricing rolling over.
On the negative side, historically when companies start to see margin pressure due to weak topline trends and negative pricing, they respond by cutting costs, i.e. laying off people, what again leads to concerns about job security, rising unemployment, lower consumption and usually a recession. Given we are starting to see the pressure on margins, there is intuitively a good chance that central banks will be able to cut rates quite aggressively, but for reasons which are not necessarily positive for equities.
The set-up for the second half of the year is very interesting and should be a fertile environment for fundamental Long/Short equity investing.
Carmignac Portfolio Long-Short European Equities
A high-conviction long/short approach to European equitiesDiscover the fund pageCarmignac Portfolio Long-Short European Equities F EUR Acc
- Recommended minimum investment horizon
- 3 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. **
Main risks of the fund
Fees
- Maximum subscription fees paid to distributors
- 0,00%
- Redemption Fees
- 0,00%
- Conversion Fee
- 0%
- Ongoing Charges
- 1.15%
- Management Fees
- 0,85% MAX
- Performance Fees
- 20,00% of the outperformance if the NAV exceeds the 5-year High Watermark since the beginning of the year
Footnote
Performance
| Carmignac Portfolio Long-Short European Equities | 2.3 | -7.7 | 10.0 | 16.7 | 5.1 | 0.3 | 7.4 | 13.6 | -5.7 | 0.7 |
| Carmignac Portfolio Long-Short European Equities | + 6.5 % | + 7.2 % | + 5.5 % |
Source: Carmignac at 28 Jun 2024.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).
Related articles
Our Merger Arbitrage strategy wins ‘Best new launch’ award
Best ESG Alternative Fund award goes to Carmignac
M&A Arbitrage: A key strategy in a high interest rate environment
Speakers : Fabienne Cretin-FumeronMarketing communication. Please refer to the KID/KIID, prospectus of the fund before making any final investment decisions. This document is intended for professional clients.
This material may not be reproduced, in whole or in part, without prior authorisation from the Management Company. This material does not constitute a subscription offer, nor does it constitute investment advice. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. This material has been provided to you for informational purposes only and may not be relied upon by you in evaluating the merits of investing in any securities or interests referred to herein or for any other purposes. The information contained in this material may be partial information and may be modified without prior notice. They are expressed as of the date of writing and are derived from proprietary and non-proprietary sources deemed by Carmignac to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Carmignac, its officers, employees or agents.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor). The return may increase or decrease as a result of currency fluctuations, for the shares which are not currency-hedged.
Reference to certain securities and financial instruments is for illustrative purposes to highlight stocks that are or have been included in the portfolios of funds in the Carmignac range. This is not intended to promote direct investment in those instruments, nor does it constitute investment advice. The Management Company is not subject to prohibition on trading in these instruments prior to issuing any communication. The portfolios of Carmignac funds may change without previous notice. The reference to a ranking or prize, is no guarantee of the future results of the UCIS or the manager.
Morningstar Rating™ : © Morningstar, Inc. All Rights Reserved. The information contained herein: is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
Access to the Funds may be subject to restrictions regarding certain persons or countries. This material is not directed to any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the material or availability of this material is prohibited. Persons in respect of whom such prohibitions apply must not access this material. Taxation depends on the situation of the individual. The Funds are not registered for retail distribution in Asia, in Japan, in North America, nor are they registered in South America. Carmignac Funds are registered in Singapore as restricted foreign scheme (for professional clients only). The Funds have not been registered under the US Securities Act of 1933. The Funds may not be offered or sold, directly or indirectly, for the benefit or on behalf of a «U.S. person», according to the definition of the US Regulation S and FATCA.
The risks, fees and ongoing charges are described in the KID (Key Information Document). The KID must be made available to the subscriber prior to subscription. The subscriber must read the KID. Investors may lose some or all their capital, as the capital in the funds are not guaranteed. The Funds present a risk of loss of capital.
The Funds’ prospectus, KIDs, NAVs and annual reports are available at www.carmignac.com, or upon request to the Management Carmignac Portfolio refers to the sub-funds of Carmignac Portfolio SICAV, an investment company under Luxembourg law, conforming to the UCITS Directive. The French investment funds (fonds communs de placement or FCP) are common funds in contractual form conforming to the UCITS or AIFM Directive under French law.
In France, Luxembourg, Sweden: The risks, fees and ongoing charges are described in the KID (Key Information Document). The KID must be made available to the subscriber prior to subscription. The subscriber must read the KID. Investors may lose some or all their capital, as the capital in the funds are not guaranteed. The Funds present a risk of loss of capital. The Funds’ prospectus, KIDs, NAV and annual reports are available at www.carmignac.com, or upon request to the Management.
In the United Kingdom: the Funds’ respective prospectuses, KIIDs and annual reports are available at www.carmignac.co.uk, or upon request to the Management Company, or for the French Funds, at the offices of the Facilities Agent at BNP PARIBAS SECURITIES SERVICES, operating through its branch in London: 55 Moorgate, London EC2R. This document was prepared by Carmignac Gestion, Carmignac Gestion Luxembourg or Carmignac UK Ltd. FP Carmignac ICVC (the “Company”) is an Investment Company with variable capital incorporated in England and Wales under registered number 839620 and is authorised by the FCA with effect from 4 April 2019 and launched on 15 May 2019. FundRock Partners Limited is the Authorised Corporate Director (the “ACD”) of the Company and is authorised and regulated by the FCA. Registered Office: Hamilton Centre, Rodney Way, Chelmsford, Essex, CM1 3BY, UK; Registered in England and Wales with number 4162989. Carmignac Gestion Luxembourg SA has been appointed as the Investment Manager and distributor in respect of the Company. Carmignac UK Ltd (Registered in England and Wales with number 14162894) has been appointed as a sub-Investment Manager of the Company and is authorised and regulated by the Financial Conduct Authority with FRN:984288.
In Switzerland: the prospectus, KIDs and annual report are available at www.carmignac.ch, or through our representative in Switzerland, CACEIS (Switzerland), S.A., Route de Signy 35, CH-1260 Nyon. The paying agent is CACEIS Bank, Montrouge, Nyon Branch / Switzerland, Route de Signy 35, 1260 Nyon.
The Management Company can cease promotion in your country anytime.
Investors have access to a summary of their rights in English on the following links: UK ; Switzerland ; France ; Luxembourg ; Sweden.