Edouard Carmignac, a veteran fund manager and co-founder of asset management house Carmignac, has cautioned investors against passive funds. He stated that rising interest rates signal the end of the 'easy money' era.
Carmignac warned that passive funds, which typically track market benchmarks, are compelled to retain indebted and unprofitable companies that can no longer rely on cheap debt. He highlighted that while simply owning the market was sufficient when money was free, choosing investments becomes essential when money is expensive.
He noted that for nearly 15 years, governments, companies, and investors operated in a world where capital seemed endlessly available. This period is now concluding, with money having a price once more. This shift has led to governments and companies competing for a limited pool of savings to finance a technological revolution, keeping borrowing costs high.
Carmignac advised investors to be careful when allocating capital, as the illusion of low borrowing costs can no longer conceal "mediocre companies on life support." He emphasised that projects and companies must now prove their worth and ability to deliver a return.