A new duo in town: The leaders and teams behind Patrimoine

If you were to summarise the recent history of the Carmignac Patrimoine fund in one phrase, it might read: ‘Same mandate; new leadership; improved capabilities’.

To unpack that short sentence a little – the fund, now 30 years old, retains its original aim of a flexible equities and bond vehicle that could be invested in regardless of timing.

The new leadership team is now in its second year. David Older, who joined Carmignac in 2015, came on board in 2019 to co-manage alongside Rose Ouahba who has been at the helm of the fund since 2007.

And the improved performance is self-evident. In 2020, the fund has outperformed 97% of peers in the Morningstar Moderate Allocation category to the end of May – five months traversing the global Covid-19 pandemic representing possibly the most extraordinary period that investors have ever had to face.

Above all, Carmignac Patrimoine is a team effort with a large number of moving parts. It has a wide-ranging flexibility across sub-asset classes and geographies that allows, as Ouahba puts it: ‘The ability to be exposed, for example, to Chinese equities at the same time as European CoCo bonds.’

That flexibility in turn requires a very strong focus on risk management. ‘I think risk management is what draws the entire underpinning of the fund together,’ says Older. ‘Rose and I spend a lot of time thinking about how the different parts of this fund fit together from a risk perspective.’

The way the team works goes beyond merely creating two separate bond and equities portfolios as investors might hold if they chose two different funds independently. 

Patrimoine also operates as an asset allocation solution, with the two managers working closely together, hand in glove, to create a dynamic asset allocation portfolio based on a cross-capital structure.

On the equities side, Older has introduced a more bottom-up approach to his  portfolio that relies on the identification of major trends reflecting to a large extent his extensive background as a specialist in the fast-evolving technology, telecoms and media sectors. He sees the macro backdrop of the world, post the great financial crisis, as being one of sluggish cyclical growth and continued very low interest rates.

This combination pointed to what he saw as a huge opportunity for stocks that would benefit across various secular growth themes in areas such as technology, healthcare, the consumer space and fintech.  Once these themes had been identified, Older began to select stocks for the fund using a bottom-up proprietary research driven approach.

While these themes had already been growing strongly over the past five years, the Covid pandemic provided a catalyst that accelerated their uptake to warp speed in the first half of 2020.

From online payments to gaming, video streaming and shopping from home, the blanket shut downs across the world’s major economies have changed the habits of businesses and consumers in months, rather than the years that might have been needed in a less abnormal environment.

‘If you look at ecommerce as a proportion of US of retail, it has gone from 5% to 15% in the last eight years,’ Older says. ‘In the last two months it went from 15% to close to 30%.’

While the share prices of the major players in these areas have risen dramatically – to the obvious benefit of the fund’s performance – Older is sanguine about continuing to hold such stocks.  Older thinks they have further long term potential, while remaining rigorous about opportunities to take profits when justified.

‘In our minds, what we have seen – as shown by the resilience of their business models during the pandemic – makes the argument that they should be even more highly valued today than they were prior to the crisis,’ he says.

For Ouahba, the effects of the pandemic have played out in different – but equally dramatic – ways for the fixed-income universe. These mostly reflect the intensive efforts of governments and central banks around the world to try to limit the financial damage wrought on businesses and consumers.

So, for example, drawing on the extensive resources of the Carmignac credit team, Ouahba has found opportunities in the way spreads between different bonds have widened as the pandemic played out. One area of particular interest has been in the subordinated capital structures of bank issuers.

Looking forward, Ouahba is also excited by the major structural changes that await Europe in the shape of the promised EU recovery fund and how that will play out in the spreads between the sovereign bonds of member nations.

And while Older rides the secular thematic growth trends for the equities portion of the fund, Ouahba remains alert to the huge uncertainty that surrounds the pace and extent of the nascent recovery in major economies as lockdowns begin to be eased in many countries.

One thing is certain – right now, the state of the world presents a situation that requires constant attention to ensure the fund remains on its current path.

‘There is an ongoing conversation about how fast economies will stabilise that we have with David and the other members of Carmignac on an almost daily basis,’ Ouahba says.