Carmignac slashes euro exposure in favour of US dollar

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French group Carmignac Gestion has cut its flagship Patrimoine fund’s euro currency exposure by almost half to increase its allocation to the US dollar.

In its latest investor note, the Paris-based firm’s spokesperson and investment committee member Didier Saint-Georges said the move was carried out during February.

‘After the euro hit 1.36 against the US dollar at the start of last month, the euro weakened in February. Amidst the struggle between fundamentals and liquidity to guide exchange rates, we took advantage of this high to gradually increase our exposure to the US dollar at the expense of the euro.’

‘Our exposure to the euro now stands at 36% and 23% for Carmignac Patrimoine and Carmignac Investissement, respectively.’

At the end of January, the €24 billion Patrimoine fund’s euro exposure stood at 66.8% while the US dollar represented 14.2%.

The drop is even more pronounced in the €7.3 billion Carmignac Investissement fund, managed by company founder Edouard Carmignac, where euro exposure now stands at only a third of its end of January level of 69%. The US dollar accounted for 24% of its currency exposure at that time.

Back in January, Rose Ouahba, co-manager with Carmignac on the Patrimoine fund, said she expected to see a stronger dollar in the second half of 2013.

She also warned of tension in safe haven countries like Germany and the US. However, following the Italian election the decision was made to buy more of these countries' bonds.

‘The Italian elections have resulted in a lack of a clear majority which have created moderate tensions in the country’s rates. Of note, however, is the absence of contagion to Spain whose bond yield have remained stable over the past month.’

‘This uncertainty has led us to re-expose our funds to German and US bonds.’

Japan play

‘We also maintained our hedging to the yen,’ added Saint-Georges. ‘The announcement of Haruhiko Kuroda as the potential future governor of the Central Bank of Japan confirms our bearish view on the Japanese currency.’

The country continues to play an important role in the firm’s tactical allocation for its Patrimoine and Investissement funds. In February the managers increased their exposure to Japanese equities through stocks like Mizuho Financial Group and Sumitomo Mitsui Financial Group.

‘Our exposure to Japanese equities now stands above 10% for Carmignac Investissement, as well for the equity pocket in Patrimoine, and remains hedged against any exchange rate risk on the yen.’

Over the past five years the Carmignac Patrimoine fund has returned 35.9% while its benchmark, LCI MSCI World Free/Citigroup WGBI TR (50:50), has risen 30.5%.

During the same period Carmignac Investissement has posted returns of 37% against the benchmark MSCI AC World TR EUR return of 20.5%.