There may be a new regime, but it's awfully familiar.
Nobody likes the uncertainty that can come with change, particularly when the status quo is pretty darn good. So, when Charles de Vaulx abruptly left the successful First Eagle funds in March 2007, his departure naturally worried the funds' shareholders. They may have breathed a sigh of relief when the funds' advisor, First Eagle Investment Management, brought the funds' previous longtime manager and value legend Jean-Marie Eveillard out of retirement to run the portfolios while a longer-term solution was determined. But the concerns mounted again when a number of other key managers, analysts, and operations folks also departed from First Eagle a few months after dSavee Vaulx had headed out the door. That crew has since founded IVA Advisors, which manages IVA Worldwide IVWAX and IVA International IVIOX.
Back at First Eagle, questions abounded. Could the diversified First Eagle funds, including First Eagle Global SGENX, First Eagle Overseas SGOVX, and First Eagle U.S. Value FEVAX, maintain the disciplined and uncommon value approach with a new set of managers and analysts? Would the eclectic portfolios endure? And importantly, would the funds behave as investors expected and be successful overall as they had been for the most part for more than two decades?
Starting (Mostly) Over
Eveillard wasn't the only one left at First Eagle who knew the strategy and the funds. For one, Abhay Deshpande was still there. Deshpande, a former Morningstar fund analyst, had worked with Eveillard as an analyst when he joined the advisor in 2000 but then had moved off the funds into separate accounts and thus had not worked closely with de Vaulx during the latter's tenure as the funds' sole manager. Deshpande re-engaged with Eveillard and the firm's Global Value Team. And Alan Barr also remained as an analyst.
But the team needed a leader to succeed Eveillard as well as more analysts to replace those who had left. More than a year passed before the team would hire another portfolio manager, not surprising given the firm’s cautious style. What was surprising, however, was its choice of a portfolio manager, Matt McLennan, who didn't have a lot of U.S. mutual fund experience. While McLennan had nearly two decades of value-investing experience under his belt, his most recent and most extensive role was as the lead of a global-value team working for Goldman Sachs’ private-wealth group in London. He didn't have a public performance record, nor could investors take a look at the portfolios he had put together. He talked the talk, but would he walk the walk?
Meanwhile, the firm also rebuilt its analyst ranks. A couple, including Kimball Brooker Jr., have since been promoted to the portfolio-management ranks. One interesting and unusual move was the hiring of the highly regarded value-investing author and professor Bruce Greenwald in late 2007. Greenwald, who had long known Eveillard, served First Eagle in a part-time role of director of research and helped primarily with the hiring and training of its analysts. It was a smart move. That Greenwald was well-known and respected probably quelled some nervousness on the part of investors. But the hire wasn't for show: Greenwald shares the fund's investment philosophy and has experience imparting how to think about the important facets of it. And he's seen enough students to help be able to determine who had the temperament to execute it.
Today the Global Value Team comprises six portfolio managers and seven analysts. Both Eveillard and Greenwald officially serve First Eagle as "senior advisors," but their active involvement in choosing investments and portfolio construction is minimal. Eveillard is also the funds' board of trustees since June 2008.
A Familiar Look and Feel
In some ways, the portfolios look different than they did in 2007. For example, the funds' average market cap has increased, and Global and U.S. Value have been moving more into U.S. technology stocks, an area they had previously tread lightly in. There's also more in financials, averaging roughly 11% since October 2007 through September 2011, up from 7% between October 1992 and September 2007. Global's and Overseas' investments in emerging Asia are historically high.
But it's plain to see the value spirit of the funds is still intact. Large-caps, particularly U.S. technology stocks, have been widely considered cheap, and the funds have remained in the blend column of the Morningstar Style Box. Deshpande says that many of these companies, such as Texas Instruments TXN and KLA-Tencor KLAC, had been on the firm's wish list for some time, and that they'd finally reached attractive enough valuations to make it into the portfolios. And while even Eveillard once said "Asia is the future" and while the research team has been looking hard at the region, valuations haven't been overly tempting. In both Global and Overseas, the emerging-Asia stake is less than 5% of assets. Still in character, First Eagle is being patient.