Flexibility to generate higher returns in different market conditions.
Unconstrained by the usual restrictions on bond investment, the Carmignac Portfolio Unconstrained Global Bond fund has two aims:
- Protect the capital invested according to a total return strategy
- Outperform the reference indicator: JP Morgan Global Fund Index
Highly opportunistic, the fund is very much conviction-based and, as its name suggests, is unconstrained. All bond instruments are used, including convertibles and CoCos, but the core of the portfolio remains government debt. All opportunities are considered, from South Africa to Brazil via Europe, the United States, Japan and New Zealand.
“The fund’s modified duration may be negative”, explains portfolio manager Charles Zerah. It can vary from -4 to +10 depending on market conditions. However, the costs associated with modified duration being negative are high, and “there is no question of letting this kind of situation drag on”. Modified duration currently stands at around 5.5.
At the start of the year, the fund was short on the United States, Germany and the United Kingdom, and expecting an appreciation of the yen, which signals a flexible – even contrarian – approach to generating alpha when the benchmark falls.
“Our performance is based on three drivers: government debt, credit and currencies”, he explains. The three drivers are not necessarily used simultaneously. One or two of them may be absent.
Forex bets remain limited for the time being, as the fund’s currency is the euro. Surprised by its recent surge, the portfolio manager has reconsidered the currency hedging. Dollar investments are limited to a few specific positions in emerging markets, such as Turkish and Argentinian debt. As things stand, nearly 76% of the fund is invested in euro, with almost 18% in yen.
At a credit level, the biggest position is currently in Japanese bonds, but the fund also retains a strong presence in Italian debt.
Several themes are currently being followed:
- Core Eurozone and Japan (long), and the United States (short)
- We have been positive on emerging market debt since mid-2016, mostly where the debt is in local currency as the fundamentals are better and inflation lower.
- Real yields on emerging market debt
The favourites are South African, Indian and Mexican debt in local currencies, Turkish and Argentinian debt in reference currencies, peripheral European debt (Italy, Greece), and France stimulated by the cyclical upswing. Regarding Greece, the portfolio manager sees the end of the European support programme this summer as a good sign.
Investment grade and high yield credit remains expensive but Zerah takes a positive view of bank and financial bonds, especially subordinated debt (Tier 1, CoCo), supported by the clean-up of doubtful loans. There are a few national champions in Europe, Switzerland and Scandinavia as well, such as UBS, BNP Paribas, Société Générale, UniCredit, BBVA, KBC and ING.
Also under the microscope are a few special cases in the healthcare and consumer discretionary sectors, and individual companies such as TEVA and Altice.
Risk management tools are used to calibrate investments in the three types of driver to minimise the impact of possible correlations between these. To this end, Zerah can call on the expertise of other teams at Carmignac.
Past performance is no guarantee of future Performance, and the Fund presents a risk of loss of capital.
Carmignac Portfolio Unconstrained Global Bond A EUR Acc (ISIN: LU0336083497) is a share class of Carmignac Portfolio Unconstrained Global Bond, a subfund of the Luxembourg SICAV Carmignac Portfolio, a UCITS open ended investment company. Ongoing charges: 1,2%. Performances are net of fees (excluding applicable entrance fees charged to the distributor). The fund has other share classes in other currencies. The return may increase or decrease as a result of currency fluctuations, for the shares which are not currency-hedged.
Promotional material – Source: Carmignac at 31/12/2017. Access to the Fund may be subject to restrictions with regard to certain persons or countries. The Fund is not registered in North America, nor in South America. The Fund has not been registered under the US Securities Act of 1933. The Fund may not be offered or sold, directly or indirectly, for the benefit or on behalf of a US person, according to the definition of the US Regulation S and/or FATCA. The risks, fees and ongoing charges are described in the KIID (Key Investor Information Document). The Fund’s prospectus, KIIDs, NAV and annual reports are available at www.carmignac.com, or upon request to the Management Company. This material was prepared by Carmignac Gestion and/or Carmignac Gestion Luxembourg and is being distributed in the UK by Carmignac Gestion Luxembourg UK Branch (Registered in England and Wales with number FC031103, CSSF agreement of 10/06/2013). The KIID must be made available to the subscriber prior to subscription.