Carmignac Portfolio Long-Short European Equities: Letter from the Fund Manager

[Management Team] [Author] Heininger Malte
Author(s)
Malte Heininger
Published on
14 May 2024
Read time
3 minute(s) read

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
Source: Carmignac, Data as of 31/03/2024

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

*Performance of the F EUR Acc share class ISIN code: LU0992627298. Past performance is not necessarily indicative of future performance.

Carmignac Portfolio Long-Short European Equities

A high-conviction long/short approach to European equitiesDiscover the fund page

Carmignac Portfolio Long-Short European Equities F EUR Acc

ISIN: LU0992627298
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

Risk associated with the Long/Short Strategy: This risk is linked to long and/or short positions designed to adjust net market exposure. The Fund may suffer high losses if its long and short positions undergo simultaneous unfavourable development in opposite directions.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.Interest Rate: Interest rate risk results in a decline in the net asset value in the event of changes in interest rates.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.
The Fund presents a risk of loss of capital.

Fees

ISIN: LU0992627298
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

ISIN: LU0992627298
Carmignac Portfolio Long-Short European Equities2.3-7.710.016.75.10.37.413.6-5.70.7
Carmignac Portfolio Long-Short European Equities+ 4.6 %+ 5.6 %+ 4.9 %

Source: Carmignac at 30 Apr 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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Marketing 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.

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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.

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