As inflation starts to ease and global central banks pivot towards cutting interest rates, the appeal of quality stocks is coming into sharper focus.
But how do these stocks perform in a rate-cutting cycle? And what role will they play in a changing investment landscape?
The pillars of quality growth
"Quality is one of the factors that we think has the ability to generate returns over the longer term." says Obe Ejikeme, one of the two portfolio managers of FP Carmignac Global Equity Compounders, "We can observe that the earnings of quality companies are far superior to those of the broader market."
The portfolio managers focus on companies with a strong historical performance that are also positioned to sustain growth through reinvestment of profits. This approach not only considers past profitability but also the capacity for future earnings. "We look for a proven track record and a forward-looking growth potential in our investments," says Obe Ejikeme.
Strategic sector selection and economic sensitivity
Central to Carmignac's strategy is a nuanced understanding of how different sectors react to economic fluctuations.
Quality stocks, according to the investment team, stand out for their resilience during economic downturns, a characteristic that becomes particularly relevant as economic indicators waver. "Most quality businesses are relatively immune from the business cycle in that they will still continue to grow their profits and their earnings, even if there's an economic downturn," says Obe Ejikeme.
FP Carmignac Global Equity Compounders investment strategy also integrates a macroeconomic perspective, akin to how fixed income strategists evaluate bond investments based on anticipated interest rate movements. The investment team looks for stocks that can act as 'defensive plays' during economic slowdowns, thereby offering stability similar to bonds. "Just as a bond investor would favour longer-duration assets when expecting rate cuts, we favour defensive equities that we believe will perform well in a slowing economy," says Obe Ejikeme.
Furthermore, the portfolio manager discusses how the firm navigates stock volatility within its quality growth framework. Despite potential short-term fluctuations in share prices, the emphasis remains on the long-term trajectory of earnings growth. "Maintaining a long-term view allows us to fully capitalise on the inherent volatility of quality stocks, turning what might be seen as market noise into opportunities for compounded returns," he says.
Ethical considerations and market volatility
Quality also means making a positive contribution to the environment and society, linking Carmignac's commitment to ethical investing with its investment philosophy. Obe Ejikeme points out that the firm actively excludes companies and sectors that could harm on environmental and societal values. This exclusion policy is rigorously applied to FP Carmignac Global Equity Compounders investment universe, which aims for 100% sustainable investments. Portfolio managers look to identify trends that can foster a more sustainable future, such as renewable energy, sustainable industrialisation. "Our sustainable screening process excludes industries such as fossil fuels and tobacco, and instead seeks to invest in companies that are aligned with the United Nations Sustainable Development Goals," says Obe Ejikeme.
Through a disciplined approach to quality growth, the investment team aims to deliver sustainable investment returns by strategically managing stock selection and economic timing. This method offers investors a viable route to capitalise on global equities, emphasising sound fundamentals and macroeconomic insights for navigating market uncertainties.
Discover FP Carmignac Global Equity Compounders
Main risks of FP Carmignac Global Equity Compounders
Equity: The Fund may be affected by stock price variations, the scale of which is dependent on external factors, stock trading volumes or market capitalization. Currency: Currency risk is linked to exposure to a currency other than the Fund's valuation currency, either through direct investment or the use of forward financial instruments. Discretionary management: Anticipations of financial market changes made by the Management Company have a direct effect on the Fund's performance, which depends on the stocks selected.
The Fund presents a risk of loss of capital.
Investment horizon: 5 years
Risk indicator: 6/7
Source: Carmignac, 31/10/2024. SRRI from the KIID (Key Investor Information Document): scale from 1 (lowest risk) to 7 (highest risk); category-1 risk does not mean a risk-free investment. This indicator may change over time.
Marketing communication. Please refer to the KIID/prospectus of the Fund before making any final investment decisions.
This document was prepared by Carmignac Gestion and/or Carmignac Gestion Luxembourg and is being distributed in the UK by Carmignac Gestion Luxembourg UK Branch (Registered in England and Wales with number FC031103, CSSF agreement of 10/06/2013).
FP CARMIGNAC ICVC (the "Company") is an Investment Company with variable capital incorporated in England and Wales under registered number 839620 and is authorised by the Financial Conduct Authority (the "FCA") with effect from 04/04/2019 and launched on 15 May 2019. FundRock Partners Limited is the Authorised Corporate Director (the "ACD") of the Company and is authorised and regulated by the Financial Conduct Authority. Registered Office: Hamilton Centre, Rodney Way, Chelmsford, England, CM1 3BY, UK (Registered in England and Wales under No 4162989). Carmignac Gestion Luxembourg SA has been appointed as the Investment Manager and distributor in respect of the Company.
This material may not be reproduced, in whole or in part, without prior authorisation from the Management Company. This material does not constitute a subscription offer, nor does it constitute investment advice. This material has been provided to you for informational purposes only and may not be relied upon by you in evaluating the merits of investing in any securities or interests referred to herein or for any other purposes. The information contained in this material may be partial information and may be modified without prior notice.
Access to the Funds may be subject to restrictions regarding certain persons or countries. The Funds have not been registered under the US Securities Act of 1933. The Funds may not be offered or sold, directly or indirectly, for the benefit or on behalf of a «U.S. person», according to the definition of the US Regulation S and FATCA. The Management Company can cease promotion in your country anytime. The risks, fees and ongoing charges are described in the KIID. The KIID must be made available to the subscriber prior to subscription. The subscriber must read the KIID. Investors may lose some or all their capital, as the capital in the funds are not guaranteed. The Funds' prospectus, KIIDs, NAV and annual reports are available at www.carmignac.com, or upon request to the Management Company. Investors have access to a summary of their rights in English at section 5 of "regulatory information page" on the following link: https://www.carmignac.co.uk/en_GB/regulatory-information
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor). The return may increase or decrease as a result of currency fluctuations, for the shares which are not currency-hedged.
CARMIGNAC GESTION 24, place Vendôme - F-75001 Paris - Tél : (+33) 01 42 86 53 35 Investment management company approved by the AMF Public limited company with share capital of € 13,500,000 - RCS Paris B 349 501 676
CARMIGNAC GESTION Luxembourg - City Link - 7, rue de la Chapelle - L-1325 Luxembourg - Tel : (+352) 46 70 60 1 Subsidiary of Carmignac Gestion - Investment fund management company approved by the CSSF. Public limited company with share capital of € 23,000,000 - RCS Luxembourg B 67 549
