Carmignac

Carmignac Portfolio Family Governed: Letter from the Fund Manager

  • Author(s)
    Mark Denham
  • Published
  • Length
    4 minute(s) read
  • +0.10%
    Carmignac Portfolio Family Governed performance

    in the 3rd quarter of 2022 for the A EUR Acc share class

  • -0.56%
    Reference indicator’s performance

    in the 3rd quarter of 2022

  • -19.59%
    Performance of the Fund year to date

    versus -13.66% for the reference indicator

During the third quarter of 2022, the return of Carmignac Portfolio Family Governed (A share class) was +0.10%, above its reference indicator, which fell by -0.56%.

Global Equity Market

The dominant themes impacting markets in the third quarter were macroeconomic considerations including persistent inflationary pressures and increasingly hawkish commentary from central banks especially the Federal reserve in the US, as well as the rising prospect of weakening economic growth and recession in 2023. This precipitated further market weakness and we saw continued rotation away from relatively highly valued quality stocks particularly in technology and healthcare sectors. We expect this sector preference to reverse once investors start to focus on risks to profits of the other more economically sensitive areas of the market in 2023, and when visibility of quality companies will be preferred. In any event notwithstanding a headwind to the types of businesses we prefer, our fund outperformed its benchmark through strong performances of some of our individual family or founder led businesses, underlining the fact we are primarily a bottom-up stock picking fund.

Portfolio Management

The most significant positive contributors to fund performance in the third quarter were all businesses that are most exposed to the ongoing strong economic activity of “main street” in the United States. Large global corporations may be seeing clouds on the horizon, but small and medium sized companies in the US and workers there are not. This was reflected in ongoing strong performances from Paychex, a provider of payroll services to small businesses whose stock rose 6%, and Cintas a workwear and industrial supplies company who rose 11%. Both are seeing ongoing low double-digit growth in sales and profits reflecting strong end market demand and growing market share and both maintained forecasts of continued momentum into the year end. In a similar vein Brown & Brown, the 6th largest insurance brokerage network in US operating across 45 states, saw double digit sales growth driven by end demand and pricing improvements, contributing to their stock rising 11% in the period.

Another strong performer last quarter was Marriott the hotel chain, where their stock rose 11%. Having been hit by the covid crisis and subsequent lockdowns limiting tourism and business travel, occupancy has since recovered to almost 70% with room rates at a level 7% above pre covid rates. Management guide for ongoing improvements in the coming period. Finally recent addition to the fund, Eli Lilly, the pharmaceutical company, saw shares rise 7%, driven by a spectacular take up of its new diabetes drug, Mounjaro, which has the additional benefit of weight loss. The trajectory of prescriptions for the new product are far exceeding those of previous launches and analyst expectations.

On the negative side we saw some stock specific issues in addition to the style and sectoral headwinds mentioned above. Wuxi Biologic the Hong Kong listed, Chinese owned contract manufacturer of drugs for the global sector, fell back a dramatic -30% on news of US government plans to prioritise domestic manufacturing capacity for biologic drugs in an attempt to reduce reliance on Chinese firms, as part of the tension between the two countries. We believe the sell off is an overreaction and have modestly increased our holding. Extra capacity will take many years to develop if it happens, will be higher cost and so less competitive, and also, Wuxi profitability is protected by the long-term nature of its current contracts. Furthermore, more recently we have had news that US equipment suppliers have the all clear to supply Wuxi, as it has recently been removed from the so-called unverified list – another US restriction.

Another large negative contributor was also in the healthcare sector. Hearing Aid maker Demant fell 29% on disappointing Q2 results showing deceleration in end market demand for hearing aids among consumers, playing into fears that as economies slow down and consumers get squeezed by rising costs, then purchases of such items will be deferred. Despite the setback we maintain our modest holding in this name. Long term demographic and innovative trends remain and should drive sustainable long-term growth in a market that remains divided between only 5-6 players.

Outlook

Overall, our activity was modest in Q3. We did sell out of our remaining holding in Adyen, the Dutch leading electronic payment processing provider. This had nothing to do with the underlying business or the prospects of the stock, but rather because the name no longer satisfies the criteria of being a founder or family business as the founder holders share ownership had fallen below our minimum 10% threshold. A new addition in the third quarter was Sartorius the family-controlled manufacturer of equipment and consumables used in drug manufacturing industry where growth in manufacturing of biologic drugs should drive sales growth for the foreseeable future.

Notwithstanding the sectoral rotation mentioned at the start of this review, and some marginal adjustments we made to accommodate it, we stick to our long-term process. We invest in fundamentally high-quality companies which also have a significant family or founder shareholder to guide the company and enable long-term strategic decisions. Detailed corporate governance analysis is essential to identify the most beneficial names among this group.



Source: Company website, Bloomberg, Carmignac, September 2022

Carmignac Portfolio Family Governed

A global, high-conviction equity fund that invests in family companies

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Carmignac Portfolio Family Governed A EUR Acc

ISIN: LU1966630706
2017 2018 2019 2020 2021 2022 (YTD)
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Year to date
Carmignac Portfolio Family Governed A EUR Acc - - +11.15 % +16.01 % +27.00 % -13.55 %
Reference Indicator - - +15.21 % +6.65 % +27.54 % -6.14 %

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3 years 5 years 10 years
Carmignac Portfolio Family Governed A EUR Acc +8.67 % - -
Reference Indicator +9.07 % - -

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​Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).

Source : Carmignac at 30/11/2022

Maximum subscription fees paid to distributors : 4,00%
Redemption fees : 0,00%
Ongoing Charges : 1.80%
Conversion Fee : 1%
Management fees : 1,50%
Performance fees : 20,00%

* Risk Scale from the KIID (Key Investor Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time.

Marketing communication. Please refer to the 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 Funds’ prospectus, KIIDs, NAV 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

  • UK: This document 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).​ ​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 Financial Conduct Authority (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: Second Floor, 52-54 Gracechurch Street, London EC3V 0EH, UK; Registered in England and Wales with number 4162989. Carmignac Gestion Luxembourg SA, UK Branch (Registered in England and Wales with number FC031103, CSSF agreement of 10/06/2013) has been appointed as the Investment Manager and distributor in respect of the Company.

  • In Switzerland: the prospectus, KIIDs and annual report are available at www.carmignac.ch, 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.

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