VALUE ADDED


Jean-Marie Eveillard Returns to First Eagle

Steven Goldberg

The famed French-born value manager is again running his old fund -- though he won't stay long. He shares some fascinating insights on the markets.



Jean-Marie Eveillard, one of the most renowned value managers, is back at the helm of First Eagle Global fund -- his post for 25 years before retiring a little more than two years ago. Unfortunately for investors, he's only staying a few months.

Eveillard, 67, replaces his longtime protégé, Charles de Vaulx, 45, who resigned last week. "It was very abrupt," says Eveillard. "He was not forced out. He resigned, and I guess only he can answer the question of why." The funds' sponsor, Arnhold and S. Bleichroeder Advisers, likewise says that de Vaulx stepped down voluntarily. De Vaulx wasn't available for comment.

I wish Eveillard would stay longer, but he's emphatic that he won't. "I have no intention of having a second career," he says. He says he was thoroughly enjoying retirement. Nevertheless, he keeps up with the markets and has some interesting insights to share.

With Eveillard back in charge and deeply involved in selecting his successor, investors in First Eagle Global and other funds under his wing will certainly want to stay put. In 25 years of managing money, Eveillard distinguished himself as a cautious investor -- losing little in down markets and making reasonable gains in up markets.

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First Eagle Global's record -- the product of Eveillard's long contributions and de Vaulx's efforts over the past two years-plus -- is superb. Over the past 20 years, First Eagle Global A (symbol SGENX) returned an annualized 13% to March 26, an average of three percentage points per year more than the return of Standard & Poor's 500-stock index. What's more, the fund has been far less volatile than the stock market. It returned 10% each year in 2000, 2001 and 2002, even as the S&P 500 lost money in each of those years. The S&P isn't the perfect index against which to judge First Eagle Global, which, as its name suggests, invests in both U.S. and foreign stocks. But over the past 20 years, Global has outpaced the average global fund by even more -- an average of five percentage points per year.

Eveillard, however, has lagged in bull markets. Investors had to suffer through market-trailing returns from 1995 through 1999. In addition to taking control of the $21 billion First Eagle Global, Eveillard also has taken temporary charge of First Eagle Overseas A (SGOVX), First Eagle Gold A (SGGDX) and a couple of domestic funds.

He plans to work full-time for two or three months and help identify his permanent replacement. Eveillard has worked with all but two of the firm's nine analysts. "We have at least a couple of people who are perfectly able to take over." Like de Vaulx, all are steeped in the Eveillard school of value investing and unlikely to change course. At the same time, given the uncertainty that manager change always brings, this isn't the moment for new investors to buy the broker-sold fund.

A resident of New York City since 1968, the French-born Eveillard has always been a worrier. But his cautiousness has paid off for both him and his shareholders -- and makes him worth listening to now.

He's particularly concerned about the credit markets. "The bond market is an accident waiting to happen, but particularly so-called high-yield bonds. Everyone is chasing yield, but one is not being paid for the risk." He also believes that the value of residential real estate and commercial real estate will both decline sharply.

After 16 years of easy credit, Eveillard says, lenders will pull in their welcome mats: "I think that we are at a turn in the credit cycle, and that's not usually a pleasant environment for equities. A tremendous amount of leverage has built up in the system, much of it hidden."

The stocks he likes are the same that almost all first-rate value managers have been gravitating toward: Large-cap former growth stocks, the classic blue chips that should do well in most environments. They include Swiss-based Nestle, Costco Wholesale (COST), Microsoft (MSFT) Johnson & Johnson (JNJ) and Intel (INTC).

"Value investors have nothing against growth," he said. "We just don't want to pay for it. Microsoft is of no interest at $35, but at $20 or $25, we take another look."

Eveillard says the portfolio isn't that different from what it was when he left. Turnover last year was less than 30%.

Eveillard looks for stocks that are cheap based on their assets and cash flow. He doesn't like to make big bets, preferring to own a large number of stocks. He holds cash -- often in double-digit percentages -- when he can't find stocks he likes.

For many years now, Eveillard has also liked gold. He launched the gold fund in 1993, and gold bullion makes up almost 3% of First Eagle Global. He views gold as insurance against inflation as well as a severe bear market or a financial accident. It's also protection against a falling dollar. Eveillard thinks the dollar will continue to fall against Asian currencies.

Long term, he says, "The future is in Asia. It's not in Europe. It's not in the U.S." But prices on emerging-markets stocks have been bid up in recent years, so he's not piling in just now. "We get interested when stocks are really cheap." He does own stocks in Korea, including tech giant Samsung.

As far as the blue-chip stocks he owns, it's hard to bet against them. They're cheap, and they'll likely hold up better than the rest of the market if his fears about the credit cycle come true.

I don't usually recommend load funds, and I don't recommend that you pay a commission to buy First Eagle Global. But if you're already in the fund, stay with it. It's a great fund. It's hard to find many funds that have performed so well while at the same time being run so conservatively. Odds are the new manager will do well with it, too -- but it'll probably take a year or two to know for sure.

Steven T. Goldberg is an investment adviser and freelance writer.



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