FUND WATCH


For a Limited Time Only: A Legendary Manager

Elizabeth Ody

Investors in First Eagle Global may not be able to count on Jean-Marie Eveillard running the fund for much longer.



Investors in First Eagle Global must have been thrilled when Jean-Marie Eveillard returned as manager. After a brief retirement, Eveillard rejoined the fund he'd steered from 1979 to 2004 in March 2007, when its then-manager, Charles de Vaulx, departed under sudden and mysterious circumstances.

But Eveillard, known as a deep value manager, isn't planning on staying long. As soon as First Eagle fills his post (two managers, one of whom has already been named, will replace Eveillard), he'll return to retirement, which he splits in New York City and Paris. But he assures shareholders that the fund's strategy will remain the same.

First Eagle invests in companies based anywhere. Once Eveillard decides to look into a business, one of First Eagle's ten analysts starts digging through the numbers, sometimes tweaking the publicly available figures if he or she feels company management has been overly optimistic.

Eveillard and the research team strive to understand what makes a business tick but will invest only if they think a stock's price is right. The fund holds stocks for five years on average.

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Long-term results have been marvelous. Over the past 15 years to April 1, the fund's A shares (symbol SGENX) have returned nearly 14% annualized -- beating Standard & Poor's 500-stock index by four percentage points per year on average and besting 99% of funds that invest globally.

Because of Eveillard's contrarian bent, the fund has lagged in go-go years such as 1998, when it broke even while the S&P 500 gained 29%. But Global makes up for lost ground during down years. The fund gained a cumulative 17% during the 2000-02 bear market, a period during which both the S&P 500 and the MSCI EAFE index of international stocks lost 47%.

The fund has held up impressively through the market's recent volatility. Since the market's peak on October 9, Global has gained 1%, beating the S&P 500 by more than 12 percentage points and EAFE by ten points.

Despite the drop so far, Eveillard is not sanguine. He says prices need to come down further before they'll pique his interest. "Here and there are a few securities that we think are reasonably attractive, but not much more than that," says Eveillard, who also runs First Eagle's Gold, Overseas and U.S. Value funds.

One stock Eveillard likes is American Express (AXP), despite its perceived contamination-by-association with other financial stocks. "Whenever a sector, like financials today, is under heavy pressure, then investors stop discriminating," he says. "But the financial sector is not homogeneous."

He also prefers Japanese stocks, in general, to U.S. stocks. The Japanese market began falling sooner and has come down further, so far, than the U.S. market. At last report, Global had 17% of its assets invested in Japan and 26% in the U.S.

"We bought SMC, a Japanese company that's involved in the world of pneumatic equipment," he says. Eveillard can't quite explain what that means, but he says the stock is attractively priced even if the company's profits fall dramatically.

Eveillard, a Frenchman, leans toward the gloom and doom end of the spectrum when it comes to the big picture. "The current financial crisis is the worst financial crisis since the end of World War II, which is a polite way of saying the worst financial crisis since the Great Depression," he says.

He says that rising inflation in the U.S. is a major risk, which he hedges by owning gold bullion and shares of gold-mining companies. He hasn't purchased any gold in the past six months, but has let the fund's position grow from about 7% to more like 10%, as the price has appreciated.

Abhay Deshpande, an associate manager, has been tapped to partially fill Eveillard's shoes. But the First Eagle team is also reeling from the loss of four senior executives last September, including two co-portfolio managers, who left over a pay dispute.

First Eagle, which is part of Arnhold and S. Bleichroeder Advisers, has since brought in a Columbia Business School professor, Bruce Greenwald, to direct research, but the firm is still far from whole.

It's a shame that Eveillard's illustrious career is winding down on such a messy note. But as he sees it, "what should comfort the individual investor is that the investment approach is as important, if not more so, than the individual himself."

First Eagle Global's A shares charge a 5% front-end sales charge, and carry annual expenses of 1.12%. Given the management turmoil, we don't recommend new investments in the fund, even if you work with a broker and normally do not pay commissions.

If you already own it, you can continue to hold the fund while Eveillard remains in charge.




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