Event Voice: Your Questions Answered by Carmignac at the Investment Week GEM Market Briefing

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Event Voice: Your Questions Answered by Carmignac at the Investment Week GEM Market Briefing

Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team? 

Ever since Carmignac was founded in 1989, we have seen value in investing in emerging markets. And as we are still convinced today that the emerging world has long-term growth potential, we are eager to tap further into the diverse opportunities it has to offer. Our long only Flagship emerging equity Fund launched in 1997, Carmignac Emergents combines our core positioning as an emerging-market specialist since 1989 and our responsible& sustainable investment credentials within the EM universe.

The Fund aims to capture the growth potential of emerging markets through

  • A rigorous stock selection, focusing on the beneficiaries of the digital and tech revolution
  • A sustainable, responsible approach. As an article 8 Fund under SFDR, we favour companies that deliver solutions to environmental & social challenges. Our investment process consistently takes ESG criteria into account. As a result, the Fund was awarded the French government's SRI label in 2019 and the Belgium Towards Sustainability label in 2020
  • An attractive risk/return profile. The Fund booked a +44.7% full-year return in 2020, earned a 5-star rating from Morningstar, and delivered results that put it in the top quartile of its category (EM Equity) for its 1, 3 and 5-year risk and return ratios (as of 30 Dec. 2020).

The Fund is managed by Xavier Hovasse as lead PM (with a 6-year track record in managing the Fund & AAA Citywire rating). He was recently joined by Haiyan Li Labbé as co-PM, both having more than 20 years of experience as Emerging Markets specialists.

How are you positioning your portfolio to prepare for the global recovery from the Covid-19 pandemic? 

As long-term investors in EMs we have a quality and growth bias. We target sustainable cash generative companies in underpenetrated sectors with sustainable growth perspectives with 10 years of growth ahead of them. However, our conviction driven/unconstrained approach give us the flexibility to adjust the portfolio to seize the opportunities as they arise.

Even if we keep our long-term convictions and concentrated portfolio (50 stocks), the cyclical rebound has encouraged us to make a few adjustments in our positioning. That is why starting from beginning of 2021, we rebalanced the portfolio towards more cyclical assets in order to take advantage as much as possible from the rebound we expect from EM given global recovery and to better position it in this cyclical rotation we are seeing. We have done this by taking profit on our best performing ideas/thematics (Electric vehicles, Chinese healthcare) and on the opposite by increasing the cyclical component of the portfolio, increasing the weight of value/ "quality cyclicals" names. We also did Top/Down rebalancing by increasing our exposure to Russia, well positioned to benefit from cyclical rebound and increase in commodity/oil prices. The country has improved its macro-fundamentals, with a current account surplus, solid fiscal balance.

Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio?

2020 will be remembered not only for the pandemic, but also as the year in which the digital revolution accelerated dramatically. Lockdown measures have benefited e-commerce players, with an unprecedented boost in adoption of all sorts of digital services. Carmignac Emergents has been positioning itself on this theme for years, increasing its exposure to the digital world and to investment themes that will be the main beneficiaries of this revolution on all continents and in all sectors. For example, in Latin America we have been investing in Mercado Libre, the leader in eCommerce and online payments since 2015. In Southeast Asia with Sea, a gaming platform that has grown into a giant in online commerce. In Russia with Yandex, the Russian search engine that takes market share from Google every year and has extended its ecosystem to cabs by merging with Uber in Russia. In Poland with Allegro, the "Polish Amazon". In Korea with Samsung Electronics, the world leader in memory manufacturing (DRAM, Nand).

Going forward we will keep concentrating on this thematic positioning, favoring:

  • Winners of the digital revolution (Internet & e-Commerce/ Green Technologies, Tech leaders)
  • Beneficiaries of long-term demographic trends and improving living standards (Healthcare & education, Consumption upgrade, Financial inclusion)

In our EM top down allocations, we favour countries with healthy macro fundamentals and improving current accounts while staying away from commodity exporting countries with external financing needs. Today we favour Asian countries, with China being our biggest conviction followed by South Korea and India. It is in Asia that we find economies with strongest fundamentals and the largest pool of innovative tech/internet companies that are and will be at the forefront of the digital revolution, accelerated by Covid. In China, we have been avoiding the companies of the old economy (banking, construction, mining), investing instead in the growing New Economy sectors, with investment themes geared towards the digital revolution the such as the Cloud (Kingsoft Cloud, Ming Yuan Cloud), eCommerce (JD.com, VIP Shop), or healthcare (Zhifei, Wuxi Biologics). A positioning that we will keep for the next quarters.

Click here to learn more about Carmignac.

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