Carmignac adjusts portfolios as Euro crisis continues

The European financial crisis is turning into an economic crisis, and although investors’ hopes revived after the European summit at the end of June, the question of generating growth has “not been resolved or even tackled”, according to the latest quarterly outlook from Carmignac Gestion.

The Paris-based asset manager said the latest measures “have the laudable aim of breaking the vicious circle of weak banks and fiscal slide, but they are in no way intended to create a virtuous circle between growth and solvency (and) they do not seem to have been implemented in any shape or form.”

The firm said monetary and other protective measures have reached their limits: Spanish yields are higher than before the two LTROs and Italian yields have barely fallen despite fiscal reforms already implemented.

The situation for Europe’s banks has also deteriorated, not just in Spain where recapitalisation needs are estimated at €100bn, but also in Italy.

Recent macroeconomic trends are worrying, and not just in southern European countries, Carmignac Gestion notes. The global economy as a whole is slowing under the influence of the European crisis. This makes it “highly likely” that bonds from sovereign issuers with sustainable finances will continue to perform well.

The main danger for equity investments lies in the risk of the European crisis spreading when governments elsewhere have little firepower left to tackle the problems. This is steering investment policy by limiting exposure to equity risk, overweighting emerging markets, and significant exposure to the dollar and yen, which can protect from the effects of the European crisis.

Within portfolios, the theme of improving living standards in emerging countries has been reduced slightly, from 44.2% to 43.3% of the Carmignac Investissement portfolio.

Banking positions (9.2% of the portfolio) have been reduced in China and Brazil. But exposure to global brands (11.2% of the portfolio) benefiting from improving living standards, primarily represented by luxury goods companies, remains unchanged.

Managers have added to positions in gold and defensive stocks. Defensive stocks have seen their weighting increased from 11.8% to 14.3% of the Carmignac Investissement portfolio. Gold mining, another defensive theme, has been nudged up from 10.3% to 11.5% of assets.


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