Investment Universe, Process, Strategy and Benchmark – How does the Fund Manager invest? (ISIN: LU0336083810)
Investment Universe
Carmignac Emerging Discovery invests principally in small and mid-cap stocks from Emerging countries in Asia, Latin America, Eastern Europe, the Middle East and Africa. Small caps are per definition EUR 0 to 1bn and mid-caps go from EUR 1 to 8bn. The fund has the possibility to invest in all countries and sectors in function of the market environment and related investment opportunities.
Given its very specific universe, the fund has the opportunity to invest in niche markets that are not yet considered as traditional markets of the emerging investment universe.
60% of the fund’s asset must be permanently invested in Equities.
The fund may be hedged on a discretionary basis during severe market downturns in order to preserve the capital invested.
Fund Management Team
The fund managers for Carmignac Emerging Discovery are Simon Pickard and Xavier Hovasse.
In the setup of the investment strategy implemented in Carmignac Emerging Discovery, Simon Pickard and Xavier Hovasse benefit from the expertise of an integrated team of portfolio managers and analysts active since the firms foundation in Emerging countries’ financial markets.
Strategy
Carmignac Emerging Discovery’s strategy is to exploit mispricing anomalies in the emerging countries’ small and mid-cap equity markets by being active and unconstrained in the asset allocation process. Investment decisions are founded primarily on a stock picking approach across a diversified selection of countries and sectors. Fundamental macroeconomic analyses, together with socio-political considerations for each country are taken into account prior to investing.
Investment Process
The investment process applied to Carmignac Emerging Discovery is more focused on the bottom up approach even if top down considerations are taken into account in the final asset allocation.
The portfolio managers will follow 3 main steps before selecting the stocks that will finally be included in the portfolio
• Idea generation > identifying stocks
• Financial analysis
• Qualitative on-the-ground analysis
Investment Objective
The fund aims to maximise returns through an active and non-benchmarked strategy by selecting stocks with strong development potential. Moreover the fund intends to outperform its performance indicator – composed of 50% MSCI Emerging Markets Small Cap index and 50% MSCI Emerging Markets Mid Cap index. As a specialized fund, Carmignac Emerging Discovery aims to maintain a high exposure level however in case of severe market turbulences the portfolio may be partially hedged in order to protect the capital invested.
Performance Review 2008
Simon Pickard and Xavier Hovasse: "In what was a volatile year, the Fund only slightly outperformed its performance indicator which plummeted 56%. This disappointing performance demonstrates the difficult conditions faced by small and mid-caps in the emerging markets."
Performance Review 2009
Simon Pickard and Xavier Hovasse: "The Carmignac Emerging Discovery Fund ended 2009 with a staggering performance of +94%, satisfying both in absolute terms and relative to its performance indicator (+92.9%), which compensates for a difficult first year for investors in 2008. Throughout the year, the Fund stayed true to its policy by making diversified investments in relatively unexplored frontier markets, in unknown, small, less liquid companies offering strong growth potential."
Performance Review 2010
Simon Pickard and Xavier Hovasse: "For the 2010 financial year, the Fund posted a performance of +32.59%, compared with +30.45% for its performance indicator. This year, although growth drivers were numerous and prospects attractive on the emerging markets, even greater care had to be taken in analysing and picking stocks. The weighted average market capitalisation of positions currently stands at just over EUR 2 billion and less than a third of the Fund’s total assets are invested in small companies with a capitalisation of under EUR 1 billion. We continued to favour countries benefiting from strong domestic growth such as China, India and Brazil."
Performance Review 2011
Simon Pickard and Xavier Hovasse: "The year 2011 proved difficult for Carmignac Emerging Discovery. The main causes of the weakness of the emerging markets are set out in the Carmignac Emergents management report. In a context of sharply rising risk aversion, small and mid-capitalisations suffered more than large capitalisations, in both the emerging and the developed markets. However, thanks to a good fourth quarter, Carmignac Emerging Discovery managed to limit its losses for the year to a decline of 19.12%, against a decline of 24.34% for its performance indicator (50% MSCI Emerging Markets Mid-Cap and 50% MSCI Emerging Markets Small-Cap). But we expect our portfolio to recover strongly when the financial markets start to rise again. The fund’s performance of 93.59% in 2009 after the 2008 stock market crisis is a good illustration of the potential for recovery of this promising asset class."
Performance 2012 - Year-to-Date
Simon Pickard and Xavier Hovasse: "The first quarter of 2012 was characterised by emerging markets’ impressive rally on the back of inflation returning to normal levels, which allowed central banks to ease monetary policy, and brightening economic prospects in the developed world. Against this backdrop, Carmignac Emerging Discovery climbed 10.85%, underperforming its indicator (up 13.13%) by 2.28%. This quarterly underperformance stems in part from the decline in our gold investments and our preference for defensive stocks, a positioning that penalised the Fund during the sharp market upturns."
