Category: Funds

A fund refers to capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership and control of his own shares. An investment fund provides a broader selection of investment opportunities, greater management expertise, and lower investment fees than investors might be able to obtain on their own. Types of investment funds include mutual funds, exchange-traded funds, money market funds, and hedge funds.

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Fidelity Low-Priced Stock K6

Human hand stacking generic coins over a black background with hexagonal golden shapes. Concept of investment management and portfolio diversification. Composite image between a hand photography and a 3D background.

As a long-term investor, he looks for resilient companies with staying power and doesn’t chase fads. He tries to avoid firms that lack an enduring competitive advantage, steers clear of those loaded up with too much debt, and scrutinizes their leadership’s integrity and prowess. The strategy stands out for its sprawling portfolio of 800-plus stocks drawn from across the globe and market-cap spectrum. Once solidly small-cap-focused, it now orients toward mid-caps but distinguishes itself from that category by owning an above-average stake of large caps (34% of assets) and small caps (30%). Its generous helping of European and Japanese firms, which have tended to enhance the strategy’s risk-adjusted returns, also sticks out.

Altogether, foreign stocks regularly soak up more than 35% of the portfolio, typically the highest share in the category. Tillinghast’s partiality for high-quality fare reveals itself through the portfolio’s average returns on equity, which are far higher than the Russell Midcap Value Index’s, and its aggregate debt/capital ratio, which is consistently lower. Tillinghast’s risk-conscious approach doesn’t have much of a thrill factor. It can lead to results that lag well behind its peers during bull markets.

Yet the strategy’s typically subdued volatility and durability in market drawdowns have consistently made up for its seemingly pedestrian results in rallies. Over the past decade through April 2021, its Sharpe ratio (a measure of risk-adjusted returns) beat 95% of funds in either the small- or mid-cap categories (excluding growth funds). The strategy’s ability to maintain its edge, despite its massive asset base of more than $41 billion, underscores its advantages.

The fund’s older version has posted phenomenal absolute and risk-adjusted returns under Joel Tillinghast, who has managed it for more than three decades. From its 1989 inception through April 2021, the fund gained 13.7% annualized, among best showings of any surviving fund in the mid- or small-cap categories. It exhibited lower volatility than relevant benchmarks and the average midvalue and mid-blend fund (its current and former category, respectively) despite an above-average foreign-equity stake. The fund has also consistently preserved capital better than its rivals during stress periods.

For example, during 2020’s pandemic-induced bear market (Feb. 21-March 23), the fund dropped 36.6% versus the Russell Midcap Value Index’s 43.7% loss. The fund’s resilience and steady gains have reliably made for outstanding risk-adjusted returns, despite its at-times less-than-thrilling total returns.

The fund’s gains only matched the index over the past decade, but earned its returns with an ample cash cushion and steadier returns. The strategy’s girth does make outperformance more difficult than in the early years; Tillinghast cannot invest as easily in the smalland mid-cap fare that he favors. He’s done better at Fidelity Series Intrinsic Opportunities FDMLX, which is his smaller, more nimble fund available for investment only by other of Fidelity’s products

Source:Morningstar

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Invesco Intermediate Term Muni Inc

This is one of the larger muni credit teams in the industry, with 16 portfolio managers and 24 muni research analysts. It has grown primarily by way of Invesco’s acquisitions, though, and the current research configuration doesn’t have a significant history navigating market turbulence together. Veteran muni manager Mark Paris, Invesco’s muni-bond head, manages this strategy alongside nine other portfolio managers. The muni research team is large, and given this team’s preference for nonrated deals, the effort is adequate for this mandate.

The strategy absorbed a legacy Oppenheimer counterpart in mid-May 2020, though the portfolio’s profile largely remained intact over the past year. This team has a long-standing specialization in high-yield munis, and this portfolio can hold up to 35% of assets combined in below-investment-grade and nonrated bonds per its mandate. Over the past five years, the portfolio has maintained anywhere from 8% to 14% exposure to below-investment-grade munis and a similar range in nonrated issues. The team’s preference for smaller nonrated bonds can carry more liquidity risk than the typical muni national intermediate portfolio does. The team aims to minimize risk through sector diversification and limits issuer specific risk by keeping position sizes relatively small.

The strategy’s Y shares gained 3.6% annualized from October 2015 through April 30, 2021, modestly outpacing the typical muni national intermediate Morningstar Category peer’s 3.4% annualized gain, though it was also more volatile, with a top-quartile standard deviation over the same period.

Adequate for a higher-yielding offering

The process employed here combines top-down macro analysis and bottom-up credit research with a focus on below-investment grade fare, though it lacks a distinctive competitive edge. The 10-person management team running this strategy is responsible for portfolio construction and risk monitoring, which is essential as the managers regularly invest in nonrated bonds. Analysts provide long- and short-term outlooks and assign proprietary ratings to each bond. The credit research team leads also meet as needed to review any changes to these ratings as well as any special circumstances around distressed securities in the portfolio

This team has a long-standing specialization in high-yield muni bonds, and this portfolio can hold up to 35% of assets in below-investment-grade and nonrated bonds. Over the past five years, the portfolio has maintained anywhere from 8% to 14% exposure to below-investment grade munis and a similar range in nonrated issues. The team’s preference for smaller nonrated bonds can carry more liquidity risk than the typical muni national intermediate portfolio does. The team aims to minimize risks through sector diversification and limits issuer-specific risk by keeping position sizes relatively small.

Portfolio – Credit-oriented

As of March 2021, the portfolio’s largest sector exposures were industrial development and pollution-control (12%), hospital (12%), and dedicated tax (12%) revenue bonds. Life-care and higher education bonds were the next largest sectors at 8% and 7%, respectively. This portfolio has historically had a larger stake in nonrated fare than its typical muni national intermediate peer. As of March 2021, the portfolio’s 14% nonrated stake was more than 3 times its typical peer’s 3% stake. This exposure primarily comprises revenue bonds in continuing care retirement communities, hospitals, charter schools, and toll roads. The portfolio also has substantial exposure to tobacco settlement bonds; its 5% exposure is higher than the typical peer’s 1% exposure as well as the 0.4% in its S&P Municipal Bond Index benchmark.

Performance – Behaves as expected

The strategy’s long-term record under lead manager Mark Paris is decent, though it has seen more volatility than its typical national intermediate muni peer. Its Y shares gained 3.6% annualized from October 2015 through April 30, 2021, modestly outpacing the typical muni national intermediate peer’s 3.4% annualized gain, though it also had a top-quartile standard deviation over the same period, suggesting a more volatile ride than most.

The team’s preference to court more credit risk in this strategy than its typical peer means it may lag when muni credit markets get rough and benefit when risk is rewarded.

(Source: Morning star)

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Diamond Hill High Yield Inv

Bill Zox joined Diamond Hill in 2001 as an equity analyst. He was named a portfolio manager on Diamond Hill Corporate Credit DHSTX in April 2006 before taking over lead management in 2008. John McClain joined the firm in June 2014 as a credit analyst and was also named comanager of Diamond Hill Corporate Credit in February 2015.

The strategy’s investment approach stands out relative to its high-yield bond Morningstar Category peers’. The team focuses on relatively small issues and tends to make sizable bets on its best ideas (up to 10% per issuer), thereby increasing idiosyncratic and liquidity risk. The portfolio has on average about 30% of assets concentrated in its top 10 positions. That said, the team offsets those risks somewhat by treading lightly in the market’s lowest-quality names and limiting how much it will own of an individual issue. This process combines an intrinsic value-driven and contrarian approach to build a high current income portfolio with the opportunity for capital appreciation targeting a high-yield Morningstar Category best-quartile return over rolling five-year periods. While the portfolio’s concentration and idiosyncratic risks are material, the managers’ analytical rigor and responsible balancing of its risks provides comfort.

A distinctive and disciplined investment process

This process combines an intrinsic value-driven and contrarian approach to build a high current income portfolio with the opportunity for capital appreciation targeting a category best-quartile return over rolling five-year periods and a 150 basis points gross excess return over the ICE BofA U.S. High Yield Index benchmark.

Comanagers Bill Zox and John McClain execute a disciplined value approach: They buy issues when their market prices are lower than the team’s estimate of intrinsic business value and sell them when their initial thesis has played out or when there are better opportunities in the market. When valuations get rich and opportunities get scarce, the managers may run a larger-thanpeers allocation to investment-grade bonds to reduce the portfolio’s market risk

The team focuses on relatively small issues and tends to make sizable bets on its best ideas (up to 10% per issuer), thereby increasing idiosyncratic and liquidity risk. The portfolio has on average about 30% of assets concentrated in the top 10 positions. That said, the team offsets those risks somewhat by treading lightly in the market’s lowest-quality names and limiting how much it will own of an individual issue

An opportunistically managed portfolio driven by valuations

In response to the 2019 credit rally, the team raised its investment-grade bond exposure up to 20% at the end of that year, its highest level since the strategy’s January 2015 inception, leaving the strategy in a relatively good position to face the coronavirus-driven sell-off that started at the end of February 2020. As the market plunged, the team rotated capital and pushed the portfolio’s credit quality profile even higher as it found numerous investment-grade opportunities in names that included Nvidia, TJX, and Sysco. At the end of 2020’s first quarter, bonds rated BBB or higher represented close to 34% of assets.

After riding the Fed’s wave of purchases and betting on the economy reopening through the second half of 2020, the managers shifted gears. As valuations got rich, they rotated the portfolio out of some higher-rated longer-duration fare into shorter-maturity higher-yielding securities. At the end of March 2021, investmentgrade bonds represented less than 5% of the strategy’s assets, and its allocation to BB-rated bonds went down to 35% from almost 42% at the end of 2020 while bonds rated B moved the other way to 48% from 41% over the same period.

A category leader with a best-in-class long-term volatility-adjusted record

The team’s attention to valuations together with strong credit selection have helped the strategy hold up better than most rivals during high-yield sell-offs. For instance, despite the energy-led sell-off that started in June 2015, an investment in McDermott International MDR was the largest contributor that year, and the portfolio’s energy stake was the largest relative contributor to the strategy’s 0.3% return, which bested 90% of its category peers. Likewise, the strategy outperformed its typical peer by 184 basis points in the last quarter of 2018 and ended that year ahead of 97% of competitors.

(Source: Morning star)

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Invesco Global Growth A

The world large-stock Morningstar Category split into three new groups based on investment style. This offering lands in the world large growth category. That’s appropriate, as it follows a growth-oriented strategy and its primary self-chosen benchmark is the MSCI All Country World Index Growth rather than the core MSCI ACWI, which it considers secondary. That said, the fund’s approach to growth investing is more restrained than those of many other funds in the new category. The managers belong to an Invesco international team that follows a doctrine they call EQV, with valuation being the “V,” and they take that aspect seriously. The fund’s most recent portfolio statistics put it nearly on the border with the blend portion of the Morningstar Style Box, while the average for the world large-growth average is much further into the growth area. Recently, that difference has benefited the fund’s relative ranking in the new category, as value and core have outperformed growth, but longer-term, the opposite is true.

This strategy has been proved on other offerings from the same team that focus exclusively on non-U.S. markets. This one hasn’t had the same level of success, partly owing to that once-deep U.S. underweighting, but also stock selection in that important market was subpar. Selection has improved recently, but the portion of that team focused on the big U.S. market remains just Amerman and two analysts.

The Fund’s Approach

The fund uses the same process that has provided solid long-term returns for a variety of Invesco international funds. It receives an Above Average Process rating. The managers look for sustainable earnings growth available at reasonable valuations and try to avoid companies with high debt levels. They put importance on the “quality” of earnings, looking for recurring revenue streams, strong cash flows, and solid operating margins. At one time, the managers of the fund’s U.S. portion used a different approach, but in mid-2013 the U.S. manager was incorporated into what had been the international team (which Invesco calls EQV, for earnings, quality, and valuation), so now the entire fund uses the EQV strategy. The valuation portion plays a significant role, leading this portfolio to be more moderate on the growth spectrum than most rivals in the new world large-growth category.

Before the U.S.-focused manager joined the EQV team, the fund heavily underweighted the U.S. side of the portfolio. That portion gradually increased; by March 31, 2021, it stood at 56%, close to the level of the MSCI ACWI Growth. The managers say they probably won’t allow such a large gap to recur, so that stock choices drive performance. Meanwhile, the fund’s small-cap weight rose after it absorbed a small-mid sibling in 2020. It now has a market cap around one third that of the index.

The Fund’s Portfolio

Matt Dennis and his comanagers took advantage of the early-2020 bear market to make many changes. Dennis and Ryan Amerman, who focuses on the U.S. side of this offering, say they added 19 new stocks to the portfolio in 2020’s first quarter, while selling 11. That’s a much higher level of activity than usual for this fund, as the managers prefer to hold on to stocks for longer periods of time, and since then activity has slowed down. Compared with its MSCI ACWI Growth benchmark, the fund has some noteworthy distinctions. Not surprisingly, given this fund’s moderate take on growth and attention to valuations, the tech-sector stake of 21% is about 10 percentage points lower than the indexes. But the managers do like a number of tech names, such as JD.com, which they say has become preferable to Alibaba BABA (though they still own the latter) because they see a greater potential for margin expansion, and Dropbox DBX, which they also added last year. Conversely, the fund’s stake in financial services is twice the index’s level, even though they are wary of big U.S. and European banks. Rather, they own investment-focused stocks such as LPL Financial LPLA in the U.S. and Fineco in Italy, along with payment-focused firms such as Visa V and PayPal PYPL. The managers say the portfolio’s substantial U.K. overweighting owes not to macro factors but to the appeal of a number of specific stocks.

The Fund’s Performance

This fund now lands in the new world large growth category. Because growth has outperformed value and core over most of the 10 years since Matt Dennis was named sole lead manager (until the past six months saw a reversal of that trend), and this fund is more moderate than most of its new peers, it has been at a disadvantage. Over the trailing 10-year period ended April 30, 2021, the 9.1% annualized return of its A shares lagged the world-large-growth category average by 2 percentage points and the MSCI ACWI Growth by 2.8 percentage points. It’s worth noting, however, that it essentially matched the return of the core MSCI ACWI over that time period, and beat the average of the new world-large-blend category by 0.8 points. (The fund’s portfolio currently lands barely on the growth side of the growth/blend border of the style box.) One hindrance has been the fund’s so-so performance in major downturns. It didn’t stand out in 2015’s third quarter, and its 13.5% loss in 2018 was more than 5 percentage points worse than the growth index and new growth category, From Jan. 21 through March 23, 2020 (the peak and trough of foreign indexes in that bear market), its return was again similar to the MSCI ACWI and the category norm.

Source: Morningstar

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Lazard International Strategic Equity

Lead manager Mark Little, based in London, joined Lazard in 1997 and has run this fund since its October 2005 inception. The other three managers have all served this strategy since at least 2009, meaning the group has worked together extensively. Lazard’s large and experienced international and emerging-markets equity teams provide the managers with excellent support.

The team’s all-cap relative-value strategy allows the managers to pursue opportunities wherever they see fit. Ideas sometimes come from quantitative screens, though the managers and analysts often uncover ideas themselves through their own research. Two of the four comanagers have accounting backgrounds, allowing the team to conduct thorough analysis on the attractiveness of a company based on their preferences. They search for companies with an alluring combination of valuation and profitability, though the portfolio’s profitability metrics fell in line with those of the MSCI EAFE benchmark as of March 2021.

As with many all-cap mandates, the resulting portfolio’s characteristics vary, and the managers have navigated well without becoming too dependent on any type of stock. The portfolio’s average market cap nearly tripled to $30.8 billion from $11.8 billion since 2013 as small- and midcap opportunities faded and large-cap stocks surged (though that tally is still lower than its median peer and benchmark). The managers aren’t afraid of making bets on specific countries either: The March 2021 portfolio had an 8% allocation to each of Canada and Ireland, while the benchmark had less than 1%

The Fund’s Approach

A flexible and well-executed approach earns this strategy an Above Average Process rating. Like other Lazard strategies, this one uses a malleable relative-value strategy that ranges across the market-cap spectrum. The team searches for companies with an attractive combination of valuation and profitability, a balance that landed the March 2021 portfolio squarely in the large-blend section of the Morningstar Style Box. However, the strategy’s flexibility also allows the portfolio’s style to drift to where the managers see opportunity, and it sat in the large-growth category for several years prior to 2019.

Quantitative screens sometimes produce ideas, though the managers and Lazard’s deep analyst bench often find ideas through their own research. Two of the four comanagers have accounting backgrounds, allowing the team to conduct nuanced analysis on the attractiveness of a company to see if it aligns with their preferences. The management team works with the analysts on top-down analysis (like economic and political situations) to supplement its fundamental research as well. If the managers decide to invest, they usually replace an existing holding, resulting in a portfolio that consistently holds between 65 and 75 stocks.

The Fund’s Portfolio

While the portfolio invested 40% of its assets in mid-cap stocks in 2013, manager Michael Bennett notes that appealing small- and mid-cap stocks have been more difficult to find in recent years. As a result, the portfolio’s stake in mid-caps had fallen to 12% by March 2021 while positions in large- and giant-cap companies rose. The portfolio’s average market cap tripled to $35 billion from $11.8 billion over that time, though it’s still lower than its median foreign large-blend peer and MSCI EAFE benchmark. Despite the managers’ emphases on financial health and valuation, the portfolio’s profitability metrics fall in line with those of the benchmark and median peer while price metrics are marginally higher.

The portfolio’s style has drifted toward the large-blend category from large growth in recent years, though risk factor exposures have always tended to align closely with the core-oriented benchmark. The managers want stock selection to drive returns, but meaningful sector bets are common, such as the 5-percentage-point underweighting in tech and a similar-size overweighting in industrials in the March 2021 portfolio. Investors here should also expect meaningful country bets, such as the 13-percentage-point underweighting in Japanese stocks in March and 8-percentagepoint over-weightings to Canadian and Irish stocks that month.

The Fund’s Performance

This strategy performed poorly in early 2020’s pandemic-related sell-off. It lost 35.5% from Jan. 22 through March 23, worse than the MSCI EAFE benchmark’s 33.7% decline. Investments in several out-of-benchmark Canadian companies dragged on returns, such as National Bank of Canada and Suncor Energy, which respectively suffered as both interest rates and oil prices plummeted. The strategy’s positions in several air-travel stocks also hurt, such as Air France, Airbus, and Canadian manufacturer CAE Inc. CAE.

Over longer periods, however, performance has been more impressive. From its October 2005 inception through April 2021, the strategy’s institutional shares’ 7.1% annualized return outpaced its foreign large-blend Morningstar Category’s 5.0% and benchmark’s 5.2%. Furthermore, it outperformed without excess volatility, resulting in superior risk-adjusted metrics (such as the Sharpe ratio) over that time frame. The strategy typically wins by shielding capital in sell-offs, capturing only 92% of the index’s drawdowns since inception. It performed well in 2018, a challenging year for international equities, and during the 2007-09 global financial crisis, though as noted it failed to provide a meaningful cushion in early 2020. While it can outperform in bull markets, such as that of 2012-13, its performance in rallies tends to be middling.

Source: Morningstar

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Avantis® U.S. Equity Institutional

The fund offers broad exposure to stocks of all sizes listed in the U.S. and tilts toward those with lower price/book multiples and higher profitability. To accomplish this, the managers assign weights based on a stock’s market cap and a market-cap multiplier. They apply larger multipliers to stocks with lower valuations and higher profitability, while those with opposite characteristics receive smaller multipliers. This technique has two advantages. It effectively leans toward factors that have historically been associated with superior long-term returns, which should give the fund an edge when those styles are in favour. It also cuts back on turnover and trading costs because a stock’s market cap is incorporated into the weighting scheme. Overall, this is one of the best diversified and lowest turnover funds in the large-blend Morningstar Category.

The portfolio’s emphasis on stocks with lower valuations has been persistent. But its preference for profitable firms was less obvious because cheaper stocks tend to be less profitable than their larger and faster-growing counterparts. However, the fund’s profitability tilt is still at work, even if its holdings, on average, generate lower returns on invested capital than the market. Incorporating profitability paints a more complete picture about each stock’s expected return and should steer the portfolio away from lower-quality names. Leaning toward stocks trading at lower valuations has paid off over this fund’s short live track record. It modestly outperformed the Russell 1000 Index, beating the bogy by 1.1 percentage points per year from its launch in December 2019 through April 2021. The fund’s 0.15% expense ratio lands within the cheapest decile of the category and should provide a long-term edge over many of its peers.

The Fund’s Approach

The fund’s managers start with a broad universe that includes U.S. stocks of all sizes. They use market-cap multipliers to emphasize those trading at low price/book ratios (adjusted to remove goodwill) and high profitability (using a cash-based measure of operating income that removes accruals). Names with lower price/book ratios and higher profitability receive larger multipliers than those with opposite characteristics. This effectively tilts the portfolio toward profitable names trading at lower valuations without incurring a lot of turnovers because each stock’s weight remains linked to its market cap, so weights will change proportionally with price changes.

The strategy takes measures to reducing trading costs. Some turnover is required when a stock’s book value or profitability changes, but the mangers will allow stocks to float within predetermined tolerances to avoid unnecessary trading. Traders can help further cut back on transaction costs.

The Fund’s Portfolio

The strategy’s broad reach and emphasis on stocks trading at lower multiples pushes it away from the largest and most expensive names in the market and improves diversification relative to the Russell 1000 Index. Its average market capitalization has been less than half that of the index. As of April 30, 2021, the fund’s 10 largest names represented 16% of assets, while the same ten firms represented about one fourth of the Russell 1000 Index.

Including small caps expands the fund’s reach and makes it one of the broadest in the large-blend category. It holds more than twice the number of stocks in the Russell 1000 Index. The benchmark does not include small-cap companies, which represent about 15% of this fund. The fund’s emphasis on stocks with low price/book ratios has been evident. Its average price/book ratio has consistently landed below that of the Russell 1000 Index, though it still lands in the large-blend segment of the Morningstar Style Box. Its value orientation also steers it toward cyclical sectors. The fund has larger stakes in the consumer cyclical and financial-services sectors, with comparably smaller positions in names from the technology and communications sectors. The portfolio’s average return on invested capital has also been lower than the index because companies trading at lower multiplies tend to be smaller and less profitable, on average.

The Fund’s Performance

This fund has a short live track record, but it managed to outperform the Russell 1000 Index by 1.1 percentage points from its launch in December 2019 through April 2021. On balance, its value orientation contributed to that mild advantage. Overweighting stocks trading at lower multiples hurt performance during the coronavirus sell-off in the first quarter of 2020, when it lagged the Russell 1000 Index by 3.7 percentage points. But value stocks aided performance during the ensuing rebound. The fund outperformed the index by 7.2 percentage points between October 2020 and April 2021. So far, this strategy has been more volatile than the Russell 1000 Index. Its standard deviation since its December 2019 inception has been about 6% higher than the benchmark, so it slightly underperformed the index on a risk-adjusted basis.

Source: Morningstar

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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First Eagle US Value A

First Eagle’s multifaceted global value team runs the strategy. Its co-heads, Matt McLennan and Kimball Brooker, each have more than 25 years of investing experience and have cooperated as managers here since March 2010. They also spearhead siblings First Eagle Global SGIIX and First Eagle Overseas SGOIX. Comanager Matt Lamphier directs the research team whose coverage ranges from equities to sovereign bonds and investment-grade credits–all fair game for this portfolio. The manager team added depth in May 2021 with Mark Wright’s promotion to full-fledged comanager after two years of honing his skills as an associate manager.

The team takes a risk-averse approach. With capital preservation in mind, it invests mostly in large-cap equities having what it sees as margins of safety–or prices well below the value of those firms’ average earnings or profitability over a business cycle, their hard assets (such as forest lands), or the strength of their balance sheets. The managers also hold cash (often 10%- 20% of assets) and gold (5%-15%), with gold serving as a hedge against economic calamity.

The Fund’s Approach

This risk-averse approach works well on sibling strategies with broader geographic reach but is less effective for this U.S.-focused offering. It warrants an Average Process rating. Whether investing internationally or in the U.S., First Eagle’s global value team takes an uncommon line. Its managers prioritize capital preservation. While sticking mostly with large-cap equities, they will also hold bonds, gold bullion, and cash. The managers target investments with a margin of safety–that is, a price well below intrinsic value–and assets (real or intangible) that should hold value even during economic distress. The team takes a long-term view, looking at average earnings and profit margins over a business cycle, earnings stability, and balance-sheet health to determine valuations. They often keep annual portfolio turnover under 20%.

Cash and gold stakes are key to this defensive approach. The managers typically keep around 10% of assets in cash–more if opportunities are scarce–and 5%-15% in gold and the equities of gold miners as hedges against economic calamity. The team’s prowess outside the U.S. has served First Eagle’s global and international strategies well, but this U.S.-focused version has struggled to compete. Keeping so much cash and gold on the side-lines has held it back in equity bull markets, and mediocre stock selection over time hasn’t helped.

The Fund’s Portfolio

This portfolio stands out in many ways. With so much cash and gold and so few bonds, equities typically account for 60%-80% of total assets, unlike the equity-only S&P 500 prospectus benchmark and many allocation–70% to 85% equity peers who wade more into bonds. The managers usually own 70-90 stocks. Cash had never been less than 12% of assets at the end of any month in manager Matt McLellan’s 12- year tenure until April 2020; it went on to hit a low of 2% in October 2020 before rising to nearly 10% in March 2021. The portfolio’s gold stake had hovered around 10% going into 2020; it appreciated to more than 15% in July 2020 before dropping back to 10% in early 2021.

The portfolio’s equity exposure is also distinctive. It has tended to be light on consumer cyclicals relative to peers (1.5% of total assets in March compared with the 8.9% category norm) but heavy on energy (7% versus 2%) and basic materials (6% to 3%). The basic-materials stake can be larger if the team is buying the stocks of gold miners such as Newmont NEM and Barrick Gold ABX, but it pared most of those as the price of gold rallied in 2020. Firms with hard assets– such as Weyerhaeuser WY, which owns forest lands, and integrated oil firm Exxon Mobil XOM– also suit this portfolio’s conservative bent.

The Fund’s Performance

This fund’s track record is middling, though a recent category change offers better points of comparison. The portfolio’s gold and cash stakes made it a poor match for its equity-only S&P 500 prospectus benchmark in the decade-long bull market for stocks following the 2007-09 global financial crisis. The strategy’s value tilt didn’t help either, as growth stocks drove much of the rally. A December 2020 Morningstar Category change to allocation–70% to 85% equity from large blend improves the picture somewhat. From manager Matt McLennan’s January 2009 start through April 2021, the fund’s I share class gained 10.6% annualized; that beat the allocation category’s 10.2% average but trailed the S&P 500’s 15.3% and the large-blend category norm of 13.5%. The fund also lagged a custom index approximating the fund’s historical asset exposures (to stocks, cash, gold, and bonds), albeit by a narrower 1.3-percentage-point margin.

Source: Morningstar

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.