Carmignac Portfolio Long-Short European Equities: Letter from the Fund Manager
![[Management Team] [Author] Heininger Malte](https://carmignac.imgix.net/uploads/NextImage/0001/18/%5BManagement-Team%5D-Heiniger-Malte.png?auto=format%2Ccompress&fit=fill&w=3840)
Dear Investors,
Overall, we had a good first quarter with the fund being up +12.38%, net of fees*; while the Stoxx 600 delivered a +7.03% return.
During the first quarter, our Core Long book generated a positive performance, driven by our large convictions in the Tech, Consumer and Healthcare sectors, while our Alpha Shorts suffered from the Beta and Momentum driven market rally.
| CORE LONGS | +18.77 |
| TRADING LONGS | +2.14 |
| RELATIVE VALUE/ SPECIAL SIT | -0.02 |
| ALPHA SHORTS | -2.37 |
| HEDGING | -3.71 |
As laid out in our last letter, we think the current environment is great for stock picking and we continue to have a strong flow of ideas on both the long and the short side.
On the long side, our investment case on Prada is playing out nicely, in a tough environment for the luxury market. The strengthened management team is executing on its strategic plan and brand heat keeps improving, leading to significant outperformance of both the Prada and MiuMiu brands, while our shorts in Burberry and Ferragamo continue to struggle.
We turned positive on the memory sector early this year with our investment in SK Hynix. While the industry is coming out of one of the worst downturns since the GFC, the recovery is amplified by the huge demand for high bandwidth memory as a key component of GPUs. While HBM demand from Nvidia and other GPU makers is growing rapidly, this sucks out capacity from the traditional DRAM market due to longer cycle times, lower production yields and more than 2x bigger die size. As HBM is a custom-order, mission critical and design-in product, it increases the pricing power & visibility on HBM producers. While the top-down set-up for the industry looks very attractive, SK Hynix is the clear leader in the market, while Samsung is going through an Intel moment and struggling to catch-up on the HBM front.
One of our largest winners this year was Lonza. While we were short this company most of last year, as a poor management team and inflated expectations led to several profit warnings, we turned more constructive at the end of last year, with a change in management and reset expectations in a structurally attractive industry. On the short side, we had strong contributions from our shorts in Grifols, AMS Osram and Aixtron.
While the focus remains on company specific drivers, our broader macro view remains relatively unchanged. Deflationary trends are slowing down and inflation is picking up again slightly, even if much more modestly than in the supply constraint post-Covid area. While the economy overall remained stronger than most people had expected, both short and long rates expectations have come up again.
While the market still seems very focused on monetary policy, we think the fiscal policy is the much more important driver for both inflation and rates. Overall, we believe the ability to control inflation with monetary policy is very limited and there is very little correlation between the level of interest rates & inflationary pressures. Counterintuitively, with Debt/GDP of over 100% in the US, the interest paid by the government to the private sector is substantial (~$1.3t in 2024) while both consumers (in the form of mortgages) and corporates have locked in cheap longer-term debt. While eventually they will need to refinance, in the short term, the impact of higher rates is stimulative, particularly as banks start to pass on higher rates to customers. Looking at historical evidence, zero or negative rate environments did not have any (positive) impact on inflation for both Europe and Japan, so while should the reverse be true? One would struggle to deny that the huge fiscal spending of the US government post covid has helped to fuel the recent spike in inflation. While fiscal policy is a more meaningful driver of inflation trends than monetary policy, through their refinancing and liquidity decision, the treasury is also driving longer term interest rates, as they control the supply of coupon issues vs bills.
While this dynamic is interesting, from a stock-picking perspective, the good news is that after the inflation & rates shock of 2022, we are now back in a more normal, fundamentally less macro driven environment. While rates might not go back down as fast as the market was hoping, there is also no new “shock” of any kind to be expected. Thus, as mentioned above, the impact on the consumers and corporates is more limited than one might expect and the market adapted to the new environment of higher rates, while fiscal spending remains very supportive and should remain as such. While the part of the economy that is more dependent on floating rates and short-term refinancing like the SME sector might start to see some cracks, the good news is that there is ample room for the FED to reduce rates and increase stimulus. This scenario could play out should the labour market weaken more rapidly than anticipated, while in such an environment, one would also expect inflationary pressure to recede. Therefore, without any extraordinary macro drivers on the horizon, the market can focus more on idiosyncratic and structural drivers, an environment that benefits a fundamental investment approach like ours.
Last but not least, we are very excited to have launched White Creek Capital with the transition of the management of the fund happening early May. The entire team is very enthusiastic about the new set-up that is even better suited for the tasks and challenges of this job.
Wishing you a great Spring!
The European Long/Short Equity Team
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
Annualised 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).
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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.
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