After painful performance woes, Carmignac Patrimoine is back with a vengeance. The period of struggles that followed the fund’s much-lauded performance during the global financial crisis in 2008 is a thing of the past as Patrimoine enters a new stage in its eventful history. More than 30 years after it started out as a pioneer among diversified strategies, Carmignac’s flagship fund, which sits at the heart of the French asset management firm, has finished a series of reforms that brought it back to the top.
As it stands, Carmignac managed to turn things around without having to change the fund’s philosophy. In the wake of a reshuffle in the management team and the reinforcement of core values, the revamp is showing its first signs of success.
At the beginning of 2019, the company’s visionary founder and CIO Edouard Carmignac handed over the mantle to Rose Ouahba, who had been co-managing the fund as head of fixed income with him since 2007, and David Older, head of equity. Under their management, Patrimoine’s net performance rose by 10% over one year to the end of January 2020, thus exceeding the sector average by 7.5% and beating 94% of its peers*.
Patrimoine, with over €10.5bn* (£9.5bn) assets, follows a cross-capital structure approach to ensure the best portfolio mix at any given market environment. ‘We see Patrimoine as a long-term savings vehicle,’ says Ouahba, who heads the fixed income component. ‘At least 50% of the fund is invested in money market instruments and fixed income products at all times. By combining the three performance drivers of international bonds, equities and currencies in a disciplined manner, we can take advantage of market swings as and when they occur.’
Ouahba makes clear where the priorities lie: ‘We want to capture most of the equity and fixed income markets upside while also being flexible enough to cushion the downside risk during correction phases. A conviction-based strategy with an emphasis on active risk management is vital in that regard.’
‘Our single priority consists of serving our clients effectively, resolutely and enthusiastically with the help of our teams and the Strategic Investment Committee.’
Combination of top-down and bottom-up
‘The objective is to combine top-down input, which has a long history at Carmignac, with a reinforced bottom-up approach. Patrimoine’s equity component is now mainly based on stock selection, which is one of the reasons why we were able to outperform the market last year,’ says Older, who manages the equity portion of the fund.
The equity stock selection aims to pick companies that are able to provide secular growth over the long term and can contribute to the fund’s core resiliency. Patrimoine’s fixed income portfolio is still mostly a combination between top-down and bottom-up analysis.
The fund managers generally put a strong emphasis on controlling Patrimoine’s overall risk level, for example by adjusting the impact of market risks on the portfolio. In order to avoid the accumulation of risks linked to different types of investments, Ouahba and Older are supported by Guillaume Huteau, front office risk manager and secretary of the Strategic Investment Committee.
The duo can benefit from Patrimoine’s large degree of latitude as well. It provides the fund managers with a large box of performance tools to choose from. Thus, the non-benchmarked strategy is not restricted to specific regions, sectors or market capitalisations.
There is also the fund’s modified duration range that makes it stand out and which, according to Ouahba, spans from -4 to +10. ‘2020 calls for flexible bond strategies that provide enough leeway to react to plummeting interest rates and fundamental policy changes. For us, the ability to quickly adapt our allocation to changing market conditions is key, especially at times like these,’ she says.
If needed, the portfolio managers also use derivative instruments to adjust the fund’s risk profile. ‘We use derivatives much more rigorously than in the past. While these insurance policies may come at an opportunity or explicit cost, they may be a major performance contributor when the risk we have identified materialises,’ Older says.
Reinforced discipline and risk management
Ouahba and Older have sole discretion over all aspects of portfolio construction, which allows the duo to follow through with their convictions. ‘Rose and I complement each other, so having that level of control is a huge advantage. We also benefit greatly from our team of analysts and experts who together provide a 360-degree view of opportunities across the fixed income and equity universe,’ Older says.
To ensure they meet their objectives, the portfolio managers also rely on the Strategic Investment Committee. The committee was launched in 2019 and represents an important tool for the fund managers within their investment process.
‘Our single priority consists of serving our clients effectively, resolutely and enthusiastically with the help of our teams and the Strategic Investment Committee. That’s why David and I have weekly video calls with the other three team members to discuss medium-term top-down views and, even more importantly, have them challenge our convictions,’ Ouahba says.
Grilled by not only the company’s heads of cross-asset and portfolio advisers, Frédéric Leroux and Didier Saint-Georges, but also by Edouard Carmignac himself, the two fund managers have to face a critical panel of investment veterans to ensure they make the best directional calls.
The duo, which distils their main strategic goals from proprietary research, claims that they have reinforced their alpha generation capabilities over the past couple of years. ‘We strengthened our team and focused even more on discipline, a key element of our investment process,’ Older says. ‘For example, we check on an ongoing basis that our investment thesis is still valid. We also thoroughly monitor the size of our portfolio positions: if risk/reward dynamics change during the holding periods of securities, we react. This enables us to maximise alpha.’
While it is too soon to tell what the future will look like, the new story of Patrimoine has already bore fruit. Carmignac’s flagship fund is prepared for the many challenges ahead.
*Source: 31/05/2020, Carmignac, Morningstar. © 2020 Morningstar, Inc -All rights reserved. Carmignac Patrimoine A EUR Acc (ISIN: FR0010135103). Rose OUAHBA and David OLDER manage the Fund since 23rd of January 2019. Daily returns in EUR as of May 31st2020. Morningstar category: EUR Moderate Allocation –Global. Performances are net of fees (excluding possible entrance fees charged by the distributor). Past performance is not necessarily indicative of future performance. The return may increase or decrease as a result of currency fluctuations. The performance of the Fund over calendar years: 0.7% for 2015, 3.9% for 2016, 0.1% for 2017, -11.3% for 2018 an 10.6% for 2019.