Carmignac changes fund name to highlight multi-asset opportunities

Carmignac Gestion is renaming its Cash Plus fund as the Capital Plus fund, and will apply a 10-fold share split to its euro share class come April, as it seeks to highlight the advantages it sees in the fund’s multi-asset approach.

The €808m fund’s euro shares are currently worth a bit more than €11,000 each as compared to the value of its other two share classes – about CHF1,000 and $1,000. Applying the split will make the euro share class easier for retail investors to access, Carmignac believes.

Although a multi-asset fund, the management of Capital Plus falls within Carmignac’s fixed income activities, and it is an important part of its core business development. Rose Ouahba, head of Fixed Income said that as a share of overall assets under management across Carmignac, the fixed income business has grown from 23.4% in 2007 to 49% by 2012 – including the headline international fixed income product Patrimoine, a fund with over €28bn of assets.

Capital Plus fund is bracketed as a response to demand in the market for funds that offer opportunity but with controlled risk. This demand is seen across Carmignac’s European client base, she added.

The name change to Capital Plus is said to reflect the product’s move away from cash to other assets in its multi-asset approach.

The fund is focused on investors with a two-year investment horizon, is committed to controlling volatility through all markets, and aims to achieve an annual return that is 2% more than the eurozone risk free rate, as defined by the Euro OverNight Index Average (Eonia). The fund aims for a target volatility of 2.5% or less by investing across four asset classes: cash, interest rates, credit and equity.

The portfolio relies on both physical instruments such as government and corporate bonds and currency, as well as derivatives such as swaps on Bunds, Bobls, Schatz, CDSs, forward options and equity derivatives.

Performance is delivered by looking for carry trade opportunities in government and corporate bonds as well as short term instruments, and then adding alpha generated across the four asset classes through both directional and arbitrage strategies, said manager Carlos Galvis (pictured).

To do this requires starting with a top down view. Galvis and his fixed income colleagues then determine volatility and correlation measures of different asset classes and strategies, before moving on to make risk adjusted asset allocation decisions. Real time monitoring then checks the risk in the portfolio.

Galvis said that volatility in the fund has been below 1% some 95% of the time since the end of October 2010.

Although the portfolio does not buy commodities as part of its multi-asset approach, Galvis said it could look to assets that are correlated to commodities or related to commodities. An example would be the FX market and the New Zealand, Canadian and Australian currencies.

He said the so-called “currency wars” were seen as an opportunity for the fund, as it would allow for more differentiation between currencies that are more sensitive to any such activity. For example, the fund would be looking to those currencies that have depreciated most and those that may be benefitting most from the ongoing intervention in markets suggested by the “war”. This has lead to taking a short position on the yen, which Galvis said is over-valued amid a policy shift designed to weaken the Japanese currency.

In terms of the main political or policy risks to the fund, Galvis said he was more concerned in the short term with developments in the eurozone periphery, particularly Italy and Spain. Longer-term he said that there was upside risk on interest rates. For example, there are thoughts around the increasing likelihood of US interest rates rising during the second half of 2013, and this may affect the positioning of the fund.

The fund is long on emerging market risk, particularly in assets such as Turkish, Polish and Russian bonds. Galvis believes that current yields will fall because inflation risk in these countries is falling.

One key risk Galvis does not see developing for investors in the fund is capacity constraints. With a focus on highly liquid assets, and AUM currently still below €1bn, he does not see any constraints on the ability to deliver the targeted performance.

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