First Eagle Global Ushers in a New Era
One of the most illustrious careers in the history of the mutual fund business has come to a close with Jean-Marie Eveillard's exit -- for the second time -- as manager of First Eagle Global (symbol SGENX). Eveillard ran First Eagle from January 1979 through March 2009, except for a two-year interlude from January 2005 until March 2007, during which the legendary value investor tried retirement once before.
If you were lucky enough to spot the talent in the French-born Eveillard when he launched the fund -- then called SoGen International -- in January 1979, and patient enough to have held your shares through March 2009, you would have earned an annualized return of 13.8%. That would have multiplied a $10,000 investment in 1979 to $495,000 today, a nearly 50-fold increase.
We recently caught up with Eveillard and his two successors, Matt McLennan and Abhay Deshpande, all based in New York City. Eveillard, who will remain a senior adviser to the First Eagle fund for three years, says one lesson he learned over time is that value investors need to pay more attention to the big picture.
Eveillard worries about several major economic issues, especially the implications of aggressive U.S. fiscal and monetary stimulus. "What troubles me the most is that if too much debt going bad was the problem, how could adding debt on debt -- which is what the American government is doing -- be the solution?" he asks.
Instead of addressing the debt issue, the government is risking "monetary debasement" and higher inflation down the road, Eveillard believes. That's one reason he raised the fund's allocation to gold -- both bullion and gold-mining stocks -- to more than 10% of assets before he stepped down.
Eveillard also thinks the American (and British) consumer is "sorely tapped out," which implies, at best, mediocre consumption growth over the next three to five years. As he puts it, the bottom 80% of U.S. wage earners haven't saved much money, and their incomes aren't growing; moreover, the wealthy have taken a huge hit to net worth from the collapse of stock and home prices.
Partly for this reason, Eveillard and his heirs are becoming more interested in investing in emerging markets -- particularly in Asia, where consumer debt levels are relatively low and governments realize that they need to stimulate domestic consumption. For now, First Eagle is gaining access to Asian economies through Western companies, such as Nestlé (NSRGY.PK), and Japanese exporters of capital equipment, such as SMC Corp. (which doesn't trade in the U.S.)
As worried as he is about both the growing risk of inflation and a weak, indebted U.S. economy, Eveillard still wants to hold stocks. One reason is that share prices have fallen so far that First Eagle is finding value in blue chips -- such as 3M (MMM) and Omnicom (OMC) -- that it has been patiently circling for a long time, awaiting the right price. "Turmoil is a blessing for value investors -- almost a treasure hunt," says Deshpande.
Eveillard also argues that compared with cash and government bonds, which pay little interest almost everywhere, stocks are attractive. Carefully selected, he says, stocks can perform well during periods of high inflation, in contrast to most fixed-income investments.
The First Eagle managers look for global leaders with strong balance sheets, high market shares and the ability to pass on price increases. McLennan says the cash stream from dominating companies such as these can be "royalty-like." For instance, First Eagle is a large investor in Japan's Fanuc, the global leader in robotics, and Shimano, the leader in bicycle components. In food catering the fund holds Sodexho, of France, and in freight forwarding it owns Kuehne & Nagel, of Switzerland.
We asked Eveillard for some parting advice. He says investors should identify three to five "good fund managers and stay with them forever," rather than jumping around in search of a hot fund or market niche. First Eagle Global, whose Class A shares levy a 5% front-end sales charge, has been a buy-and-hold fund of that caliber for more than a generation. The challenge for McLennan and Deshpande is to fill Jean-Marie Eveillard's large shoes.