Carmignac Portfolio Grande Europe: Letter from the Fund Manager

During the first quarter of 2025, Carmignac Portfolio Grande Europe (F EUR share class) posted a negative return of -4.17%, providing a return below its reference indicator which rose 5.91%.

The first quarter was one with many important events leading to quickly changing market dynamics. January started strongly, with similar trends to those seen at the end of 2024, namely growth stocks and technology names performing well. However rising uncertainty as to the intentions of the US President Trump, leading to rising inflation expectations and rising bond yields, combined with the Chinese artificial intelligence (AI) model DeepSeek, raising doubts over US dominance in technology, precipitated a selloff in technology stocks in the US and then also in Europe. In addition, the German government voted to increase defence and infrastructure spending raising the prospect of improving European economic growth which itself led to Banks, Defence stocks and other so-called value sectors performing well, while growth stocks fell back. So having started strongly in January the fund gave back performance in February and fell sharply in March.

Much of the damage to our fund's relative performance during the period was because we had no exposure to the Defence or Banking sectors. We are an SFDR article 9 fund and exclude many sectors of activities we are not prepared to invest our client’s money in - this includes stocks with exposure to controversial or conventional weapons, and so we continue to avoid defence stocks. Many banks are aligned with our sustainable outcomes framework, but most do not satisfy the financial requirements we look for namely demonstrably high, sustainable profitability combined with reinvestment of profits for future growth. Hence, we have no banks in the fund currently. It may be in future if profitability at banks improves that they start to meet the threshold on the above metrics, and we are monitoring this carefully. If we focus on what we actually own, then it is fair to say that despite a poor fund performance in the quarter, the companies we invest in delivered operational results as we would have anticipated.

Our leading software names continued to perform well. SAP full year results for 2024 were strong confirming that their program of transitioning clients to their cloud based software is performing very well, leading to double digit revenue growth for the company, because the transition typically results in clients buying more products. The majority of their customers have yet to make the transition and so we have strong visibility into the next 2-3 years of growth. The stock having risen 70% in 2024, eked out another modest positive return of 3% in Q1. Reflecting the higher valuation, we have cut back the position somewhat despite their continued positive prospects. Another German software stock Nemetschek did particularly well rising 14% as the construction and design industries use more of their productivity enhancing software, enabling revenue growth of the order 17%, a dynamic we expect to continue in an increasingly cost conscious world.

On a negative note, our Healthcare stocks performed poorly. Novo Nordisk having had a torrid end to 2024, continued to fare poorly, falling another -23% despite the prospect of c20% profit growth in 2025. This is due to concern around their competitive positioning in obesity, as well as continually disappointing prescription data in the US. We currently expect the latter to inflect positively as cheap copy-cat products are withdrawn from the market and we will soon get clarity around a competitor’s potential oral product. Both these events should be an opportunity for us to reassess our positioning. Biotech stock Zealand Pharma fell 27% despite the company agreeing a very lucrative partnership deal for their most valuable drug which exceeded our expectations, allowing us an opportunity to increase our holding in the name.

Our Industrials stocks were also a source of weakness in the quarter, mainly due to a weaker economic growth outlook. Schneider Electric is also benefiting from many secular growth drivers, and one of them is an increased datacentre investment requiring growing electrical infrastructure. However, the DeepSeek event started some concerns about how much investment is required to run AI models. This caused an initial setback in the name, which was amplified about concerns any US tariffs may have on economic growth generally. The stock fell 12%, but we maintain it as a large holding as we are optimistic on the longevity of their future growth.

Generally, our consumer names performed well. EssilorLuxottica rose 12% after Q4 results showed accelerating organic growth driven by innovations such as smart glasses as well as ongoing penetration of the market for addressing and managing refractive impairments. They also gave a solid medium term outlook which looks achievable and underpins our confidence in the investment case. Hermes is one of the few luxury goods names we own owing to our observation of its position at the apex of exclusivity and therefore pricing power. This was rewarded by FY results demonstrating high single digit growth, as well as a similar level of price increases announced for 2025, contributing to the stock rising 4% over the period.

We retain our focus on companies demonstrating high sustainable profitability and reinvestment as we believe these names will deliver the highest and most consistent long term profit growth. The good news is that the recent pullback in such companies offers the long term investor an opportunity to add to holdings, which we have been doing.