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
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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.
