In the fourth quarter of 2024, Carmignac Portfolio Flexible Bond posted a net performance of +0.37% for the A shareclass, while its benchmark1 was up +0.07%.
The last quarter of 2024 was characterised by volatility for bond assets. Despite the cuts in key rate by central banks on both sides of the Atlantic (-75bp respectively for the ECB and the FED in 2024), the configuration was tilted on the upside for euro and US bond yields in this final quarter. The spectrum of an economic slowdown in the United States, combining an easing of the labour market and consequently less vigour on the part of the US consumer, was completely dispelled at the end of the year with vigorous statistics on job creation and consumption. As a result, the US 10-year yield soared by +79bp over the quarter, accelerating sharply after the US central bank's last meeting at the end of December, which resulted in a hawkish message for the forthcoming sequence of rate cuts for 2025. In addition to the sustained pace of growth in the US economy, the resurgence of inflation is of particular concern to central bankers, who have been forced to revise upwards their inflation target for the months ahead. On the one hand, headline inflation rose again on both sides of the Atlantic in the last quarter, and on the other, core inflation continues to hover well above the central banks' target at 3.3% in the United States and 2.7% on the Old Continent. In addition, the forthcoming arrival of Donald Trump to the White House is also reinforcing the prospect of higher and lasting inflation in the future, fuelled by the prospect of a still high fiscal stimulus, a tight US labour market due to a lack of immigration and higher customs duties, which would spread inflation not only within the country but also to other regions. In the eurozone, the uptrend in yields was less vigorous, with the German 10-year yield gaining +24bp over the quarter, in line with growth that remained weak at 0.9% year-on-year. Nevertheless, leading indicators in the region seem to indicate that the low point has been reached, particularly in manufacturing, as do consumer data such as retail sales, which surprised on the upside during the third quarter. In contrast to interest rates, credit was once again particularly resilient in the final quarter, with credit spreads remaining stable thanks to technical factors that had a positive impact on the asset class.
During the last quarter, we once again used the leeway provided by our management mandate to deliver a positive absolute and relative performance. In an unfavourable market environment, the fund generated a positive performance of +0.37%, taking the strategy's annual performance to +5.42%. Our inflation-linked instruments were the best contributors to performance during the last quarter and have intact performance potential going forward, given the relatively low market expectations for the coming months. Our selection of credit issuers once again delivered an attractive performance through the carry component. Finally, in a rising interest-rate environment, our modified duration management was crucial in delivering a positive performance, which ranged from -0.8 to 1.5 at the end of the period. In addition, our short positions on euro and US long rates made a particularly significant contribution to the fund's performance. We also made other arbitrages, increasing our exposure to emerging assets by initiating new positions in Argentinian and Senegalese debt.
We are maintaining a similar investment thesis for the start of 2025, based on the following 3 performance drivers: yield curve steepening, carry play and inflation-linked instruments. We are therefore starting this new financial year with a cautious approach to the strategy's level of exposure to interest rates. Indeed, while in the short term the level of yield observable on the markets is no longer an argument for negative interest-rate sensitivity, we believe that it is too early to take an interest in the long end of the yield curve. The political situation on both sides of the Atlantic is likely to maintain a high volume of debt issuance, resulting in upward pressure on long yields. We also remain cautious about valuations across the credit spectrum: while the carry offered by this asset class remains attractive, the tightening of credit spreads seen over the last two years now leaves little room for future appreciation. Indeed, despite the robustness of the technical factors of this asset class, we favour the implementation of hedges to protect against a potential volatility shock. Finally, we remain constructive on inflation-indexed strategies, which offer substantial upside potential given market projections that remain too lenient for the future.