Investment decisions rely on independent fundamental research which gives us a comprehensive understanding of countries, sectors and companies. Over the years we have developed our internal research process, reinforced by more than 1500 site visits per year, an annual trip to Asia and Latin America by our CIO, consumer data and proprietary tools.
Regarding the latter, an interesting example is the proprietary database developed by our Credit team, as direct contact with companies is key to our approach to credit investments. They frequently meet with company management to understand the strategies and tactics they apply. This process is complemented by conversations with suppliers and sell-side analysts, as well as industry conferences which leads to the creation of a database of investment cases. Many potential investments often remain on the watchlist for quite some time before they are included in the portfolio. The team waits for more attractive risk-return profiles, with only 5% of these investment cases eventually entering the portfolios*. This gives an edge to the credit team, particularly during market sell-offs as they are able to make informed investment decisions reactively, free from fear or market noise.
Our entrepreneurial culture favours teamwork, idea sharing, and cultural and geographic diversity. The investment team boasts a wealth of expertise: macroeconomics, equity markets and bonds markets. The size of the team favours synergies as it allows for a daily exchange of ideas and knowledge.
For example, our Healthcare Analyst talks to our China Analyst about how to spot the best healthcare companies in China to invest in. Our Credit Analyst works hand in hand with the Financial Analysts to make sure that when a bank is picked we choose the best security, credit or equity. Our Head of Emerging Markets, who has a deep knowledge of Latin America, travels with our Consumer Analyst to identify the next Ecommerce giants.
This cross-fertilisation encourages Analysts and Fund Managers to share their investment ideas. The strongest ideas are debated and scrutinised during the Fund Management Team’s daily meetings, as to whether they are a conviction to follow or not. If it becomes a conviction, we invest in it, regardless of direction taken by market indices or market rumours.
As an illustration, our Tech Analysts had identified LinkedIn as an attractive investment idea at the end of 2015 and built a strong conviction case as they saw the growth potential in the company’s new mobile app and ‘Sales Navigator’ feature. However, after several long discussions during the daily Fund Management meetings, they decided not to invest given extended valuations. After a 40% correction on Q4 results in February 2016, the team revisited the investment case and seized the opportunity to build a sizeable position on stock weakness. And just three months after our investment, Microsoft made a takeover bid to the company, attracted by the opportunities arising from the social network’s database of professionals, thus validating our analysis, taking the stock price higher and contributing significantly to our global Funds’ performance.
The ability to manage market risks effectively has been a cornerstone of Carmignac’s investment style for many years. This capability, built up over the years, was put to the test on a large scale for the first time in 2002 and then again on multiple occasions, including in 2008 when Carmignac managed to protect clients’ capital during highly volatile markets. The development of risk analysis, risk control and risk management tools over the years means that, today, Carmignac’s fund managers have an effective toolkit to carry out their work.
This risk management culture, which aims to embrace the risks compatible with long term performance as well as to reduce those identified as unfavourable, is inherent in our approach and is therefore applied to all our funds, while respecting the specific risk profiles of each one.