Carmignac P. Flexible Bond: Letter from the Fund Managers

  • -6,61%
    Performance of Carmignac Portfolio Flexible Bond

    in Q2 2022 for the A EUR Acc share class

  • -7,07%
    Performance of the reference indicator

    in Q2 2022 for the ICE BofA ML Euro Broad EUR Index

  • -1,12%
    Annualised performance of the Fund

    over 3 years compared to -4.59% for its reference indicator

Carmignac Portfolio Flexible Bond was down sharply in the second quarter (–6.71% for the A EUR Acc share class and –6.61% for the F EUR Acc share class), in line with the –7.07% drop in its reference indicator¹ (ICE BofA ML Euro Broad (EUR)).

As we indicated last quarter, the underperformance can be more than fully explained by the losses on our Russian investments, which have detracted more than 3% from the Fund’s return so far this year. However, this underperformance was mitigated by the high carry of our portfolio and by our significant level of hedging since the start of the year.

Market environment

Inflation once again reached record highs around the world, prompting central bankers to further tighten monetary policy by enacting steep rate hikes. In the US in particular, inflation is being driven by enduring factors such as higher rents and wages, at a time when the US job market is running hot. The US Federal Reserve has responded by picking up the pace of its policy tightening with a 75 bp rate hike in June – the biggest such move since 1994. In Europe, however, inflation is mainly the result of soaring energy prices, although it now seems that the price appreciation has spread to all segments of the economy, including wages and services. All of the world’s main central banks – apart from a handful of exceptions, such as Japan – have either started lifting their policy rates or announced they will soon, in order to tighten lending conditions and slow consumer-price growth. This has had a dramatic effect on bond markets: yields and credit spreads have jumped, resulting in losses across all market segments.


Source: Carmignac, Bloomberg, Ice BofA Indices (G0Q0, G0D0, G0F0, G0I0, EMGB, C0A0, H0A0, EGJI, G0QI), 30/06/2022

Central bankers must now walk a fine line. While tighter lending conditions are needed to curb inflation, they also have a dampening effect on economic output and increase the risk of an early recession. Monetary policymakers are having to tighten the policy screws at a time when GDP growth is already stalling. Business and consumer confidence indicators are starting to fall; the US property market is showing initial signs of cooling; and some commodities prices are trending downwards. The prospect of an economic slump has pushed down inflation expectations as measured in the bond market. The inflation breakeven rate derived from 10-year US Treasuries dropped by nearly 1% in Q2, wiping out its entire increase over the past 12 months.

In this climate, where investors aren’t sure whether to worry more about the growing inflationary pressure or the risks to economic expansion, bond markets have experienced a record spike in volatility, a contraction in liquidity, and several dislocations.


Source: Carmignac, Bloomberg, 30/06/2022

The ECB has announced it will soon introduce a new “anti-fragmentation instrument” – i.e. a new asset purchase programme for eurozone bonds – in order to stem the rise in sovereign credit spreads. The spread on Italian BTPs narrowed considerably on the announcement (the details of the instrument have yet to be fleshed out), indicating that investors find the ECB’s intentions credible.

The widening spreads in Q2 weighed heavily on our Fund’s performance. We had significant exposure to emerging markets (17% on average over the quarter), European financial debt (21%), and corporate debt (21%). Some of the losses were offset by the credit protection in our portfolio: CDSs on high-yield and EM debt indices that we’d purchased to help us navigate these uncertain times. But unfortunately, these swaps didn’t offer all the protection we’d hoped for in light of the market dislocations and reduced liquidity.

While our hedges (through derivative instruments) helped soften the blow from the rising rates in Q2, we also suffered from our short positions on eurozone peripheral debt when prices rebounded sharply in the wake of the ECB’s announcement.


Source: Carmignac, 30/06/2022
Past performance is not a reliable indicator of future performance. Performance is net of fees (excluding distributor's fees). Performance may vary upwards or downwards depending on currency fluctuations.

Asset Allocation

We adjusted our asset allocation in Q2 in response to the changing market climate.

  • We substantially reduced the portfolio’s modified duration. Rates are moving higher as a result of the monetary policy tightening being carried out in response to inflation. We now have a negative modified duration on core rates, achieved by concentrating our short positions on the short-dated segments of the European and US yield curves and on Japanese yields. In the last two weeks of the quarter, bond markets began pricing in fewer expected rate hikes – for instance 8 hikes by the ECB in 2022 rather than 11. But we believe the revised figures are too low given the persistent nature of today’s inflation. We also have net short positions on Italian, Spanish, and French rates. We increased our exposure to inflation breakeven rates in EUR and USD, following the severe correction on these instruments, as discussed above.

  • We increased our credit-market exposure by 10%. With the steep rise in credit spreads, valuations have returned to particularly attractive levels. The market dislocation may be costly but it’s also throwing up opportunities. We reinforced our positions on the strongest convictions in our portfolio, and especially on European financial debt (whose spreads have moved in the opposite direction as those on peripheral debt), on certain high-yield and EM issuers, and on CLOs (which are appealing in terms of both the returns they offer and their hedging role). But given the extremely high volatility and the ongoing uncertainty on both the economic and geopolitical fronts, we decided to keep a substantial level of protection (around 23%, consisting of CDSs) on our exposure to corporate and EM debt.


We believe that inflation will remain strong. It may have peaked in the US (with Europe soon to follow), but inflation readings will likely plateau at elevated levels. That means central banks will have to continue with their policy tightening and thus create a further drag on the economy. We doubt they’ll put an end to the rate hikes anytime soon – and they may even step up the pace in the near term, backed by new instruments designed to contain the rise in the spreads of the most fragile issuers. We’re therefore keeping our modified duration very low and have a bearish outlook on the assets most vulnerable to the withdrawal of monetary stimulus.

Our portfolio remains centred on our three main themes, which offer attractive valuations and solid fundamentals even in this turbulent climate: corporate bonds issued by companies linked to commodities and energy prices; subordinated debt; and EM debt. Around 14% of our portfolio consists of cash and money-market instruments, and we have credit protection (CDSs) in place in order to mitigate the impact of market downturns and enable us to invest in future performance drivers should the market dislocations get worse, creating new opportunities in the process.

Carmignac Portfolio Flexible Bond

A flexible solution aiming to capture bond opportunities globally

Discover the fund page

Carmignac Portfolio Flexible Bond A EUR Acc

ISIN: LU0336084032

Recommended minimum investment horizon

Lower risk Higher risk

1 2 3 4 5 6 7
Main risks of the Fund

INTEREST RATE: Interest rate risk results in a decline in the net asset value in the event of changes in interest rates.

CREDIT: Credit risk is the risk that the issuer may default.

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.

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.

The Fund presents a risk of loss of capital.

Carmignac Portfolio Flexible Bond A EUR Acc

ISIN: LU0336084032
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 (YTD)
Year to date
Carmignac Portfolio Flexible Bond A EUR Acc +1.98 % -0.71 % +0.07 % +1.65 % -3.40 % +4.99 % +9.24 % +0.01 % -8.02 % +4.67 % +3.04 %
Reference Indicator +0.10 % -0.11 % -0.32 % -0.36 % -0.37 % -2.45 % +3.99 % -2.80 % -16.93 % +6.82 % -1.17 %

Scroll right to see full table

3 Years 5 Years 10 Years
Carmignac Portfolio Flexible Bond A EUR Acc -0.43 % +1.78 % +1.09 %
Reference Indicator -4.46 % -2.83 % -1.56 %

Scroll right to see full table

Source: Carmignac at 28/06/2024

Entry costs : 1,00% of the amount you pay in when entering this investment. This is the most you will be charged. Carmignac Gestion doesn't charge any entry fee. The person selling you the product will inform you of the actual charge.
Exit costs : We do not charge an exit fee for this product.
Management fees and other administrative or operating costs : 1,20% of the value of your investment per year. This estimate is based on actual costs over the past year.
Performance fees : 20,00% when the share class overperforms the Reference indicator during the performance period. It will be payable also in case the share class has overperformed the reference indicator but had a negative performance. Underperformance is clawed back for 5 years. The actual amount will vary depending on how well your investment performs. The aggregated cost estimation above includes the average over the last 5 years, or since the product creation if it is less than 5 years.
Transaction Cost : 0,38% of the value of your investment per year. This is an estimate of the costs incurred when we buy and sell the investments underlying the product. The actual amount varies depending on the quantity we buy and sell.

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.

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, 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, or upon request to the Management.

  • In the United Kingdom: the Funds’ respective prospectuses, KIIDs and annual reports are available at, 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, 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.