Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Russel Kinnel | 05-06-2015 12:00 AM

Fund to Watch: First Eagle Global Income Builder

Managers Ed Meigs and Giorgio Caputo apply First Eagle's conservative, wide-ranging framework to the income space.

Russ Kinnel: Hi, I'm Russ Kinnel, director of manager research for Morningstar. I'm joined today by Ed Meigs and Giorgio Caputo of First Eagle Global Income Builder (FEBAX). It's a fund that was launched about three years ago and will shortly have its first star rating.

Giorgio and Ed, thanks for joining us.

Giorgio Caputo: Thank you, Russ.

Ed Meigs: Thank you, Russ.

Kinnel: Why don't we start with the basic questions: What's the goal of the fund? What's the philosophy of the fund?

Caputo: The goal of this fund is to deliver a meaningful and sustainable level of income, and what we mean by that is an income that is helpful to our clients today, that is significant, but also one where we ensure the ability to generate that income in the future. So, if you're distributing something like 1% to an investor, that isn't particularly helpful. They have to have a very significant asset base in order to generate income, but on the other hand, you don't want to overdistribute income because that might impair your ability to grow your principal ahead of inflation and make sure that you can generate an income in the future. So, when we think about balancing those two objectives, we believe an income level in the range of 3.5% to 4% balances the need for income today and income in the future.

Kinnel: Ed, of course, philosophically, the fund is built on the First Eagle premise that we know from First Eagle's other funds. These are conservative, wide-ranging global funds.

Meigs: Absolutely. And taking a very flexible approach to providing the meaningful and sustainable level of income. So, it is a fully flexible mandate. We really are focusing on downside protection, avoiding the permanent impairment of capital.

Kinnel: I think maybe that makes you stand out a little from some of the other allocation funds with income in their name in that they may be stretching for yield both on the income side and the equity side.

Caputo: It's a dangerous environment for income-oriented investors today. Obviously, the level of interest rates is very low, and we've seen a lot of income-related assets trade at very high valuation levels. REITs, for instance, in the United States and utilities--just to name a couple of asset classes. And it's an environment where investors are at risk of potentially reaching for yield. You mentioned the First Eagle valuation framework. Basically, what we're trying to do is invest with a margin of safety whenever we put capital into a risk asset, and that is irrespective of whether it pays an income or not; we have very definitive criteria for when we believe something has enough of a margin of safety to warrant an investment.

So, in launching this fund, what we wanted to do was bring this discipline to the income space and essentially be an income fund that will say no to yield sometimes when we believe that a margin of safety does not exist.

Read Full Transcript
{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article