Macro & Market Views

First Eagle Global Value Team: Perennial Relevance

First Eagle Global Value Team: Perennial Relevance

It’s been said that quality endures. Inherent in this concept is that there are some willing to assign greater value to items they believe possess certain hallmarks of quality—craftsmanship, consistency, timelessness—than to those of similar utility but lesser regard.

Evidence of such artisanal preference can be found across the consumer landscape, from leather goods to bicycle parts to clothing. Many of the brands that exemplify this paradigm virtually define the niches in which they operate and, perhaps most importantly, have been able to avoid the commodification of their aesthetic even as they’ve grown in prominence over time.

First Eagle’s Global Value team applies what we view to be a similarly idiosyncratic and time-tested approach to equity investment. For more than 40 years, we have sought to generate real absolute returns across business cycles while avoiding the permanent impairment of capital, offering access to strategies we believe represent a diversifying complement and source of long-term ballast in client portfolios.

The Illusion of Choice

What constitutes true diversification can be hard to pin down in markets that have become extremely top-heavy. For example, while the S&P 500 Index is considered a proxy for the US equity market, the market capitalization of the 10 largest (primarily tech-related) stocks in the index comprise 35% of its total. Similarly, the MSCI World Index’s weighting in US stocks exceeds 70%.1 The many portfolios benchmarked to these indexes—both active and passive— likely have similar concentrations, challenging investor efforts to realize the potential benefits of diversification.

In contrast, selectivity is at the heart of the Global Value team’s value-oriented investment process, and our flexible mandates allow us to apply this selectivity to the global opportunity set from the bottom up to build go-anywhere, benchmark-agnostic portfolios. We focus on assets we believe demonstrate scarce quality and value, and invest in them only when we can do so at a “margin of safety.”2 Cash holdings are a residual of this investment discipline and serve as a form of deferred purchasing power, while stock selection in certain portfolios is complemented by a structural allocation to gold—a store of value for millennia—as a potential hedge against extreme market outcomes.

Going Against the Grain

Many of us on the Global Value team had the pleasure of working side by side with Jean-Marie Eveillard, who launched the Global Fund in 1979 and served as its portfolio manager until he retired in 2008. Of all the wisdom he shared, this is perhaps the most resonant: “I would rather lose half my shareholders than lose half of my shareholders’ money.” 

The potential for upside capture and downside mitigation has always been central to our investment strategies, and this mindset historically has provided resilience in the face of market downturns that occur more often than most appreciate—even during extended bull markets. The S&P 500 Index has experienced negative returns in 49 rolling five-year periods and 24 rolling 10-year periods since 1979, while the MSCI World Index has posted a respective 58 and 14.3 Importantly, our focus on minimizing potential losses during periods of broad market weakness has amplified potential upside during the subsequent recoveries.4

Our historical track record of successfully preserving capital can be at least partially attributed to our active avoidance of areas of the market that don’t meet our strict underwriting standards, whether individual stocks, sectors or regions/countries. While these acts of omission caused us to miss out on periodic sharp rallies concentrated in certain parts of the markets—such as Japan in the late 1980s, technology in the late 1990s and financials in 2007 and 2008—they also enabled us to sidestep the full brunt of the corrections that inevitably followed. Moreover, challenging markets historically have provided us with opportunities to buy fundamentally solid businesses at what we view as discount prices; that is, to plant seeds we were able to harvest when market conditions normalized.  

Confront Uncertainty

The future is uncertain by definition. But as the investment horizon extends from weeks to months and from months to years, we believe the likelihood only increases that a meaningful threat to wealth will at some point emerge.

To combat such risk, we build portfolios from the bottom up, assembling a select group of assets that in our view are positioned to endure the inevitable vicissitudes of the business cycle, local and geopolitical turbulence, and the cumulative ravages of inflation and currency debasement.

In short, we seek quality. And we do so through an approach that mirrors the same characteristics we value in an investment—commitment to craft, consistency of discipline and intentional timelessness.

1. Source: Morningstar; data as of September 30, 2024. 
2. First Eagle defines “margin of safety” as the difference between a company’s market price and our estimate of its intrinsic value. “Intrinsic value” is based on our judgment of what a prudent and rational business buyer would pay in cash for all of a company in normal markets. 
3. Source: S&P Global, MSCI; data as of June 30, 2024. 
4. Source: FactSet; data as of December 31, 2023. Rolling periods calculated monthly. Global Fund returns based on A shares without sales charge. Values would be lower if a sales charge was included and assumes all distributions have been reinvested. 

The opinions expressed are not necessarily those of the firm. These materials are provided for informational purposes only. These opinions are not intended to be a forecast of future events, a guarantee of future results or investment advice. Any statistics contained herein have been obtained from sources believed to be reliable, but the accuracy of this information cannot be guaranteed. The views expressed herein may change at any time subsequent to the date of issue hereof. The information provided is not to be construed as a recommendation to buy, hold or sell or the solicitation or an offer to buy or sell any fund or security.

Past performance is not indicative of future results. 
Risk Disclosures

All investments involve the risk of loss of principal.

A principal risk of investing in value stocks is that the price of the security may not approach its anticipated value or may decline in value. “Value” investments, as a category, or entire industries or sectors associated with such investments, may lose favor with investors as compared to those that are more “growth” oriented.

There are risks associated with investing in foreign investments (including depositary receipts). Foreign investments, which can be denominated in foreign currencies, are susceptible to less politically, economically and socially stable environments; fluctuations in the value of foreign currency and exchange rates; and adverse changes to government regulations.

Investment in gold and gold-related investments present certain risks, and returns on gold related investments have traditionally been more volatile than investments in broader equity or debt markets.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Definitions

Beta measures an investment’s price volatility relative to that of the overall market. Bull market is generally defined as a period during which a securities market index rises by 20% or more. A Morningstar category reflects a cohort of portfolios determined by Morningstar to share certain investment characteristics based on their holdings. Global allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds and cash. While these portfolios do explore the whole world, most of them focus on the US, Canada, Japan and the larger markets in Europe. It is rare for such portfolios to invest more than 10% of their assets in emerging markets. These portfolios typically have at least 10% of assets in bonds, less than 70% of assets in stocks and at least 40% of assets in non-US stocks or bonds. © 2024 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. MSCI World Index (Net) measures the performance of large and midcap equities across developed markets. A net-return index tracks price changes and reinvestment of distribution income net of withholding taxes. S&P 500 Index (Gross/Total) measures the performance of the large cap segment of the US equity market but is widely recognized as a proxy for the US market as a whole. It is composed of 500 constituent companies across the US economy, weighted by float-adjusted market capitalization. A total-return index tracks price changes and reinvestment of distribution income.

Indexes are unmanaged and do not incur management fees or other operating expenses. One cannot invest directly in an index.

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First Eagle Investments is the brand name for First Eagle Investment Management, LLC and its subsidiary investment advisers.

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