The French group Carmignac Gestion has increased its exposure to Europe's banks and its debt markets following Draghi's promise he would provide massive support to the region’s indebted sovereign debt markets.
In its latest monthly investor note, Carmignac’s spokesperson and investment committee member Didier Saint-Georges outlined the dire situation in the eurozone and how his group is positioning itself to reap its rewards.
‘It is imperative that the European Central Bank abates this disaster economy and re-establishes enough trust in the European periphery’s markets,' said Saint-Georges.
‘Its president Mario Draghi understood this as he pre-announced a massive support for European sovereign debt markets.'
‘The attack plan remains uncertain and fraught with pitfalls, but the war on systemic risk has this time been declared.’
The will of central banks like the ECB and the Fed to intervene further in their respective economies is the outstanding issue facing investors within an alarming global economic environment, he said.
But while their intervention, if confirmed, should be hailed, investors must also protect themselves.
‘This is done through a portfolio construction which now gives space to the direct beneficiaries of the ECB’s support – equities and bonds from European banks, sovereign peripheral debt for the bond funds – but which continues to favour companies that have a low exposure to the economic cycle.’
It has been revealed that part of the sovereign debt increased has been focused on short-term Italian bonds.
‘This strategy also means maintaining, and in some cases reinforcing, our exposure to gold - at the dawn of a reflation effort from central banks – and local emerging market debt, which is benefiting from the global economic slowdown.’
Looking at the firm's most popular global funds, the €23.8 billion Carmignac Patrimoine and the €7 billion Carmignac Investissement, their overall equity exposure has been boosted, reaching 100% for Investissment and 45% for the global mixed asset Patrimoine fund.
In light of the adjustments in the group’s equity exposure, Saint-Georges said they have partially reduced the US dollar and Japanese Yen positions in the Carmignac Patrimoine fund and have increased the exposure to the euro in the Carmignac Investissement fund.
Saint-Georges was also concerned with French economic leaders' apparent lack of recognition over the seriousness of the country’s current predicament.
‘Despite the efforts of Spain and Italy, there are still at risk of short-term asphyxia if their refinancing costs are not quickly normalised.’
‘We can also note that in France, even with the menace of economic collapse knocking on the door, a certain atmosphere of ‘phoney war’ continues to prevail.’‘The state institutions, feeling probably protected by their safe haven status, seem to not perceive the urgent need to strengthen the economy’s competitiveness.’
Over the past five years the Carmignac Patrimoine fund has posted returns of 39.7% while its benchmark, LCI MSCI World Free/Citigroup WGBI TR (50:50) index, has risen 17.2%.
During the same period the Carmignac Investissement fund has returned 20.2% while its Citywire benchmark, MSCI AC World TR EUR index, has risen 2.2%.