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Carmignac: why we gave Trump the benefit of the doubt

Carmignac: why we gave Trump the benefit of the doubt

Carmignac's cautious stance on US President Donald Trump after his election provided short-term gains but his failure to enact policy meant shifts in currency positioning were much needed.

Speaking to Citywire Selector, Didier Saint-Georges said Rose Ouahba and Edouard Carmignac examined Trump’s election plans and thought they were positive for the market.

However, they had to change their positioning in the €28 billion Carmignac Patrimoine fund between December 2016 and March 2017 when Trump's plans proved to have little impact.

‘You could make money by doing two things. One by positioning yourself on the domestic stocks including the small and medium-cap players because they would benefit from all these tax reforms and promises that Trump was focusing on,’ Saint-Georges said.

‘The other thing we did at the time was to give Trump the benefit of the doubt. He was claiming he would avoid a widening of the trade deficit because of protectionist measures, which should benefit the dollar. At the time, we increased our dollar exposure, which turned out to be the right decision at the end of 2016.’

Saint-Georges said the reduction of the trade deficit failed to materialise which coincided with the political outlook in Europe improving, which led them to focus efforts on the euro.

‘At the beginning of this year that was crumbling down. We started to take a profit on cyclicals in the US, and added back to tech and the high visibility factors. We also we reversed our position on the dollar in the initial part of this year.’

Strength in Europe

Looking forward to the upcoming elections in Germany, Saint-Georges said that there was not much uncertainty and the momentum of the elections would stabilise and unite Europe.

The equity part of the fund currently allocates 23.35% to Europe, but has no stock holdings in Germany. 

‘These elections are going to confirm that Germany remains very stable. It has heard the call that it needs Europe to get stronger in the face of the US' stance that is less supportive to Europe. I think Angela Merkel has heard the message that Europe should take care of itself.

‘Germany is going to be very keen to reach a level of partnership with France, because Germany now has a credible partner to work with in France,’ he said.

Saint-Georges added, while the negotiations surrounding the UK’s decision to leave the EU were tough, the outcome would not cause volatility in the market.

‘The end game will be smoother than people fear. France and Germany are two large economies driving the eurozone and they are large trading partners with the UK.

'They have a vested interest not to shock their trading partners. So I do not buy the argument that Europe would want to punish the UK for Brexit.’

Over three years to the end of August 2017, the Carmignac Patrimoine fund returned 8.30% in euro terms. This compares to a rise of 21.42% by its Citywire-assigned benchmark, the LCI MSCI AC World TR EUR/Citi WGBI TR EUR (50:50), over the same time frame.

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