Carmignac Absolute Return Europe

European equity markets rose in February, despite a mixed performance from global equities. US markets posted a negative return due to growing uncertainty about the US government's policy agenda and weakening economic data.

European equities were buoyed by a better-than-expected Q4 earnings season and hopes of an imminent ceasefire in Ukraine. This led to the second consecutive month of European equities outperforming US equities.

Oscillating news on Trump tariffs, a better earnings picture in Europe, and strong capital flows into potential beneficiaries of a ceasefire catalyzed significant short covering and rotational forces within European markets.

European equities were led by a strong performance from banks, which returned 12%, driven by strong earnings beats and positive outlook statements for 2025.

Other notable performers in February included defense stocks, telecoms, food and beverage, insurance, and construction. The main laggards were media, technology, and retail.

In a highly rotational market, our long book produced a small positive return. However, this was more than offset by losses from our equity short book and derivatives portfolio hedging program, resulting in a negative portfolio return for the month.

Within the equity book, financials generated the largest positive return at 1.14%, along with small positive returns from materials and consumer staples. The main detractors were technology and healthcare.

Key stock selection winners included long positions in Anheuser-Busch InBev, driven by a recovery in beer volumes that delivered strong numbers; Allied Irish Bank, due to anticipation of strong Q4 numbers and an improving outlook for loan growth; and Standard Chartered, following an earnings beat, raised guidance, and a £1.5 billion share buyback.

The main laggards from stock selection were our long positions in Amazon, due to forward guidance failing to meet expectations; Demant, after reporting growth numbers for hearing aids below expectations; and TSMC, amid concerns about the sustainability of AI spending.

February was a challenging month for the fund. Overall, we reduced our gross exposure from 129% to 115% over the course of the month, and our net exposure from 28% to 20%. During this process, we increased our net exposure in communications, construction, and consumer staples, while reducing our exposure to technology and consumer discretionary names.

The market is held 'hostage' to the US administration's constant tweets, policy shifts, and U-turns, causing significant uncertainty and volatility.

The geopolitical situation is also in flux, with Trump taking a hard stance with the EU on Ukraine/Russia peace negotiations.

This has prompted a significant fiscal response from the EU, particularly Germany, with its new defense and infrastructure plan (subject to government approval).

These headlines significantly impact markets, forcing investors to recalibrate their allocations. It raises the question of whether to pursue cyclicality and value in the EU at the expense of selling AI, US tech, or even structural growth, including pharma.

The daily market movements are substantial. It remains inconclusive and too early to make a definitive call, so much of our current activity focuses on core holdings and capital preservation.