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Carmignac Absolute Return Europe: Letter from the Fund Managers
Over the first quarter of 2025, Carmignac Absolute Return Europe (A EUR Acc share class) realized a negative performance of -1.99%.
Market environment
The beginning of 2025 has been a turbulent period for investors, as markets continuously recalibrated in response to geopolitical and macroeconomic events.
January commenced on a positive note, with significant inflows into European equities from global investors aiming to diversify away from the correctional markets in the US. A pivotal moment came with the German government's unexpected announcement of a €500 billion program to enhance defence and infrastructure. This initiative was widely regarded as a catalyst for European growth, anticipated to further bolster substantial inflows into European equities, especially in defence stocks and cyclical/infrastructure sectors. Consequently, European equities outperformed US equities during the quarter for the first time in many years with the Stoxx 600 outperforming the S&P500 by 10%.
US equities had experienced an exuberant rally following the election of President Trump, but soon faced potential headwinds and distortions due to the "America First" policies. Despite Trump being in office for only a few weeks, the growing uncertainty around the US government's policy agenda and its impact on economic data, coupled with frequent aggressive headlines from the administration, began to weigh on market sentiment, driving US markets into correctional territory. Concurrently, increasing skepticism about artificial intelligence (AI) and especially Data Centre expansion, prompted more cautious commentary from the industry, applying pressure on US tech stocks, including the “Magnificent 7”. This triggered a substantial de-grossing event among hedge funds. Quality stocks were generally sold off while shorts were aggressively covered, causing substantial pain for most investors and exacerbating the de-grossing. Additionally, the rapid spike in volatility severely impacted investors, impairing their ability to hedge portfolios, and thus further accelerating the market correction.
During the first two months of the quarter, European equities surged and managed to retain most of their gains, in contrast to US equities which entered negative territory. The top-performing sectors in Europe included Banks, driven by positive earnings revisions and accelerated buybacks and dividends, as well as Insurance, Telecoms, Utilities, and Construction. However, sectors such as Travel and Leisure, Media, Retail, and Autos lagged behind.
Performance review
After a strong start to the year, the portfolio encountered significant challenges in February and March due to intense market rotational forces and unprecedented levels of de-grossing, which triggered heavy selling pressure. While the main positive contributors were Financials, particularly banks, and our industrial shorts, these gains were more than offset by losses in Technology (AI sell-off), Consumer Discretionary, and Healthcare.
In such unfavourable and unpredictable market conditions, we strived to remain as disciplined as possible within the fund's restrictions and rules to manage risk. Accordingly, we reduced long exposure in Industrials, Healthcare, Consumer Discretionary, Technology, and Materials—sectors potentially vulnerable to tariffs. Additionally, we added short positions in some cyclical European names which, in our view, had rallied excessively following the German stimulus program announcement. We also initiated short positions in European names likely to be impacted by a deteriorating US consumer environment and economy.
We reduced our gross exposure from a high of 130% in January to around 100%, and our net exposure from the mid-20s to 10-15% by the end of March, fluctuating daily based on our various option hedges. Despite our best efforts to protect the portfolio, it was frustrating to watch our January profits turn into a 2% loss by the end of the quarter due to the macroeconomic and geopolitical-induced sell-offs and rotations. The last few weeks of March were among the most challenging since the onset of Covid-19, characterized by unpredictable headlines and numerous policy reversals, primarily from the US administration. Unfortunately, these challenges have persisted into early April and have worsened since Trump's 'Liberation Day.'
| Long Euronext – upgrades from elevated market trading volumes | Long Amazon – concerns about slowing economic growth |
| Long Deutsche Telekom – earnings beat from their US mobile business | Long Infineon – ongoing effects of Industrial inventory correction |
| Long Fresenius – positive earnings drive rerating | Long TSMC – profit taking in the AI theme |
| Long Piraeus Financial – positive earnings report | Long Zealand – partnership with Roche didn’t convince investors |
| Long Intesa Sanpaolo – strong net interest and fee income | Long UCB – suffered from de grossing and perceived risk from upcoming tariffs |
What is our outlook for the coming months?
Currently, the world is experiencing a period of unprecedented uncertainty. The tariff-based policy decisions introduced by the new US administration have embedded an element of 'Trump mania' into the global capital markets psyche, creating significant headline risk with dramatic consequences on a daily basis. There is a palpable risk of an all-out trade war, forcing business leaders, corporates, and investors to operate in a landscape with zero visibility, and we have yet to witness the economic ramifications in hard data and corporate earnings.
The Q1 reporting season is expected to be dominated by a loss of confidence in the earnings outlook for 2025. It would be almost surprising if management teams do not issue warnings about future prospects or significantly downplay their expectations. In these circumstances, our primary focus must be on capital preservation until this geopolitical turmoil subsides, while simultaneously retaining the ability to be reactive and opportunistic with the opportunities that will undoubtedly arise in the coming months.
Despite the greater level of uncertainty compared to previous crises, we know that they eventually come to an end. When they do, there will be incredible opportunities. For example, many of our fundamental positions, especially long ones, are now vastly oversold—even in a recession scenario, particularly within the healthcare sector—as they have suffered greatly from the widespread de-grossing. These positions should offer enormous upside potential once the geopolitical landscape stabilizes.
Carmignac Absolute Return Europe
An opportunistic and style agnostic long/short approach to European equitiesDiscover the fund pageCarmignac Absolute Return Europe A EUR Acc
- Recommended minimum investment horizon
- 3 years
- Risk indicator*
- 3/7
- SFDR - Fund Classification**
- Article 8
*Risk Scale from the KID (Key Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time. **The Sustainable Finance Disclosure Regulation (SFDR) 2019/2088 is a European regulation that requires asset managers to classify their funds as either 'Article 8' funds, which promote environmental and social characteristics, 'Article 9' funds, which make sustainable investments with measurable objectives, or 'Article 6' funds, which do not necessarily have a sustainability objective. For more information please refer to https://eur-lex.europa.eu/eli/reg/2019/2088/oj.
Main risks of the fund
Fees
- Entry costs
- 4,00% 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
- 2,20% of the value of your investment per year. This estimate is based on actual costs over the past year.
- Performance fees
- 20,00% max. of the outperformance if the performance is positive and the net asset value exceeds the high-water mark. 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
- 0,74% 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.
Performance
| Carmignac Absolute Return Europe | 8.9 | 14.6 | 4.4 | -1.3 | 5.2 | 12.6 | -6.4 | 0.0 | 3.6 | -2.0 |
| Carmignac Absolute Return Europe | - 0.9 % | + 2.8 % | + 2.6 % |
Source: Carmignac at 31 Mar 2025.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).
Reference Indicator: -
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Carmignac Absolute Return Europe: Letter from the Fund Managers
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.
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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 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.
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 www.carmignac.com, or upon request to the Management.
In the United Kingdom: the Funds’ respective prospectuses, KIIDs and annual reports are available at www.carmignac.co.uk, 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 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.
In Spain : The Funds are registered with the Spanish National Securities Market Commission (Comisión Nacional del Mercado de Valores) under the following numbers: Carmignac Sécurité 395, Carmignac Portfolio 392, Carmignac Patrimoine 386, Carmignac Absolute Return Europe 398, Carmignac Investissement 385, Carmignac Emergents 387, Carmignac Credit 2027 2098, Carmignac Credit 2029 2203, Carmignac Credit 2031 2297, Carmignac Court Terme 1111.
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