Carmignac Portfolio Family Governed: Letter from the Fund Manager

During the fourth quarter of 2023, the return of Carmignac Portfolio Family Governed (A share class) was +6.8%, whereas its reference indicator, rose +6.4%, meaning that for the calendar year the fund rose +20.7%, and its reference indicator rose +18.1%.

Global equity markets had a positive year, with continued positive momentum. Initially, the positive momentum was driven by the possibility of a cessation of interest rate rises due to falling headline inflation. Later, the ongoing resilience of the US economy pushed expectations of a recession to later in the year or even into 2024. Global markets rose significantly in the final quarter responding to an unequivocally dovish message from central banks, notably the US Federal Reserve (the Fed), that inflation is now under control and that we can look forward to interest rate cuts in 2024. The S&P 500, known for its focus on growth, outperformed other major equity indices over the period, marking its best quarterly performance in three years. Throughout the year, the dominant force behind the index's returns was the 'magnificent seven' tech and artificial intelligence (AI) stocks, which accounted for approximately 80% of the overall returns.
The third quarter was dominated by rising bond yields and hawkish commentary from the Fed, which created downward pressure on Technology and Consumer Staples stocks. In the final quarter, global markets rose in response to a dovish message from central banks, with expectations of interest rate cuts in 2024, thus reversing the narrative of the prior quarter. The markets continue to be confident that central banks had completed their rate hikes, but remain cautious about the duration of restrictive interest rates and the potential impact on the stock market.

During the year, the Fund recorded a positive absolute and relative performance. The main performance came from stock selection. Healthcare, Industrials and Consumer Staples were the best contributing sectors to our fund.
The beginning of the year was driven by resilient consumer data in the US, falling energy prices in Europe and expectations of falling inflation. The rally was led by the Information Technology sector where we do not usually find many family governed businesses, however the two names we hold Veeva and Fortinet were among the best performers buoyed by growth, profitability and strong results.
The second quarter was very strong for our main contributors during the year. Our large holdings in Eli Lilly and Novo Nordisk, who both provide the new GLP-1 drugs to treat diabetes and obesity, continued to power ahead of the sector, rising 60% and 50% respectively during the year, driven by strong sustained growth of this class of drugs in the US and the prospect of easing supply constraints likely enabling further growth driven by obesity demand in 2024.
Even if the third quarter was dominated by hawkish commentary from the Fed creating downward pressure on stocks, dental implant company Straumann delivered strong performance rising c28% after the name delivered higher than expected sales growth in the third quarter and encouragingly maintained full year growth targets of sales and profits growth. Our Consumer Discretionary selection was also positive, and it was particularly gratifying to see Garmin rising 42% during the year and having a particularly strong Q3 driven by growing sales in Marine, Auto and Fitness products. In the last quarter, economically sensitive areas like Industrials, Commodities, and Technology performed well, along with sectors sensitive to falling rates like Utilities and Real Estate. However, our fund's structure was not aligned with this positive backdrop as we had limited exposure to technology and cyclical sectors. Additionally, our largest sectoral exposure to healthcare underperformed the market. Despite this, our fund outperformed its benchmark through successful stock selection. For example, the soft drinks distribution company Coca Cola Consolidated rose 40% over the quarter while the Consumer Staples sector overall rose only 1%.
From a cyclical standpoint, 80% of the portfolio is in less cyclical names as we have derisked our portfolio over the last couple of quarters. Our focus remains in Healthcare, Industrials and Staples which represent 40%, 15% and 12% respectively.

We continue to keep a defensive stance with less exposure to cyclical names. Regular reviews of the corporate governance of our names remains an important feature of managing this fund. We are convinced that Family or Founder businesses if they are well managed will deliver the best returns over the long run. Thankfully our reviews have led to no major concerns, although of course we engage with many companies on specific details. However, we have been aware that a few of our names no longer exhibit the minimum level of control of 10% of the votes, as the founder or families have been reducing their stakes. Consequently, investors in the fund should expect us, over the coming months, several divestments from the current portfolio.

We maintain our systematic and long-term investment process. We invest in fundamentally high-quality companies which also have a significant family or founder shareholder to guide the company and enable long-term strategic decisions. Detailed corporate governance analysis is essential to identify the most beneficial names among this group.