Commentaries

Overseas Fund Commentary

Overseas Fund Commentary

Market Overview

As of September 30, 2025

Shaking off the second quarter’s volatility, equity markets marched steadily higher throughout the third.

Though risk and uncertainty remained in ample supply during the summer, stocks continued to rebound off their April “Liberation Day” troughs as investors cheered continued artificial intelligence (AI) spending and the prospect of Federal Reserve easing. For the quarter, the S&P 500 Index gained 8.1%, led to new record highs by the market’s tech-oriented growth names. The MSCI EAFE Index returned 4.8% in the third quarter but maintains a year-to-date advantage of more than 1,000 basis points over US stocks.1

Market Valuations Suggest Lofty Expectations, Particularly in the US

At the risk of sounding like a broken record, we’ll again point out that risk perception in the US markets appears quite low. Equity market valuation multiples are rich, high yield spreads are tight, implied volatility is low, and the price ratio of growth to value stocks is near its all-time high.2

In short, we think it’s fair to characterize the appetite for risk in the US as full—which is not to say market prices have no foundation in reality. Earnings growth forecasts remain constructive, driven by factors ranging from the impact of the AI capex cycle to fairly accommodative fiscal conditions. In terms of the latter, the rate of growth in government spending and the size of its debt continue to exceed wage growth, imparting some positive nominal drift to the economy that has trickled down into expectations for corporate earnings and margins expectations. At the same time, short-term interest rates have moved lower following September’s widely expected 25 basis point reduction in the federal funds rate, and markets are pricing in an additional 50 basis points of cuts by year-end.3

Similarly constructive dynamics have emerged in non-US economies, beckoning the return of animal spirits to markets sorely in need of a boost and helping to drive the relative outperformance on non-US equity markets year to date. In Europe, for example, Germany has taken steps to leverage its ample fiscal capacity, notably on defense and infrastructure projects,4 and NATO countries as a whole agreed to raise annual defense spending to 5% of GDP by 2035.5 China’s multiyear debt-restructuring initiative for local governments— earmarked at 12 trillion yuan—appears to be bearing fruit, enabling local authorities to clear arrears to suppliers rather than debt service.6 In Japan, the country’s likely next—and first female—prime minister has a reputation as a pro-spending conservative who also favors stimulative monetary policy.7

Considerable weakness in the dollar over the course of 2025—the ICE US Dollar Index is down nearly 10% year to date—has further supported the outperformance of non-US equity markets. Still, it wasn’t until this year that the MSCI EAFE Index broke through its 2007 peak.8 The MSCI EAFE is trading around 17x trailing earnings—not cheap but well within the realm of normal, from our perspective, and certainly less rich than the S&P 500’s 28x.9 And while it has pulled back marginally, the price ratio of US equities to non-US stocks stands at more than 2.5 times the average since 1970.10

Unusually, Gold and Equities Have Surged in Tandem

An interesting feature of the financial markets over the past several quarters has been the concurrent rally in equities and gold prices. Gold’s year-to-date gain of nearly 50% puts it on an annual pace not seen in nearly 50 years, as central banks and investors alike have piled into the metal amid elevated risks and the potential for currency debasement. More recently, we’ve also seen other precious metals—including silver and platinum—break out to the upside.11

Historically, equities and gold have both participated in the nominal drift of the global economy, but they typically have done so in a countercyclical manner, as gold has tended to thrive in conditions less supportive of equity investment. There have been exceptions, however, perhaps most notably during the early 1970s. This period was characterized by the fiscal pressures of the Vietnam War, the end of the Bretton Woods gold peg and executive branch pressure on the Fed to ease interest rates despite inflation pressures, a combination of factors that contributed to monetary disequilibrium and a decade of stagflation.

While we don’t want to overstate the historical analogies, there are some evident parallels between that period and the current environment, including the fact that the US appears to be a long way from home base in terms of monetary and fiscal settings. For example, we wouldn’t expect the federal government to be running at a substantial fiscal deficit over the past several years—including just shy of 6.0% of GDP in the recently completed fiscal year—with sub-4.5% unemployment levels.12 Meanwhile, Trump is pressuring the Fed to lower the federal funds rate while the fiscal imbalance remains unaddressed and geopolitical tail risks have only grown fatter.

Tending the Garden

Strong markets can create a dilemma for portfolio managers; while you want to let your roses bloom, you must remain true to your investment discipline. Viewing our portfolios from the bottom up, we have looked for opportunities to recycle capital, trimming more successful positions to take advantage of other opportunities in sectors or geographies that have been out of favor.

Of course, the world remains rife with risk, including massive sovereign debt loads, geopolitical frictions and political strife. While an increase in the market’s perception of these risks would likely impact both US and international stocks, international markets in general appear to be priced with less expectational risk compared to the US, given current valuations. Regardless, we expect our investment discipline to support our efforts to provide long-term real returns while avoiding the permanent impairment of capital.

Portfolio Review

Overseas Fund A Shares (without sales charge*) posted a return of 9.20% in third quarter 2025. All regions contributed to performance; emerging markets and North America were the leading contributors while Japan and developed Asia excluding Japan lagged. Materials and consumer discretionary were the largest contributors by equity sector while communication services was flattish and healthcare also lagged. The Overseas Fund outperformed the MSCI EAFE Index in the period.

Leading contributors in the First Eagle Overseas Fund this quarter included gold bullion, Alibaba Group Holding Ltd., Prosus N.V. Class N, Imperial Oil Limited and Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR.

The gold price continued to set new record nominal highs during the quarter, propelled by a rare convergence of monetary policy uncertainty, attacks on Federal Reserve independence, disruptive trade policy, shifting fiscal policies, heightened local and geopolitical tensions, and high sovereign debt levels.

Shares of tech giant Alibaba were strong during the quarter. With large infrastructure/data centers and leading open-source models, the company’s cloud business has accelerated to capitalize on the AI boom in China. Its partnership with Nvidia, announced in September, further underscores Alibaba’s commitment to its AI and cloud operations. At the same time, the company’s core e-commerce business continues to grow, with improved operating efficiencies that enable it to return cash to shareholders through dividends and stock repurchases.

Prosus is a global technology company domiciled in Holland with a portfolio of private equity investments and an approximate 25% ownership stake in China’s publicly traded technology company Tencent, which is Prosus’s largest holding. Tencent delivered strong topline growth and margin expansion during the quarter and investors seemed to applaud Prosus’s shift away from smaller, riskier acquisitions toward more established businesses at reasonable multiples. Driven by positive cash flow from operations, Prosus continues to buy back shares.

Imperial Oil is a Canadian integrated oil company that is 70% owned by Exxon Mobil. The company reported strong upstream production during the quarter and continued to restructure and consolidate its asset base, reducing the need for future reinvestment. Announced staff reductions and the sale and leaseback of the company’s headquarters should enhance profitability. Imperial’s strong record of returning cash to shareholders through both buybacks and dividends continues unabated.

Taiwan Semiconductor (TSMC) is the world’s largest semiconductor foundry, a primary manufacturer of advanced chips used in generative artificial intelligence for clients including Nvidia, Broadcom, Intel, Advanced Micro Devices and Apple. As the main foundry for Nvidia, TSMC shares were strong during the quarter on continued strong demand for AI processors.

The leading detractors in the quarter were Shimano Inc., SMC Corporation, FUCHS SE Pref Registered Shs, Haleon PLC and Ambev SA Sponsored ADR.

Japan’s Shimano, which manufacturers bicycle parts, fishing components and rowing equipment, lowered its forward guidance during the quarter because of weakness in overseas markets and ongoing inventory adjustments. Our investment thesis remains intact, as we are confident that Shimano can work through accumulated inventories after the strong but unsustainable demand for its products during the Covid-19 era. In addition to high-quality products and dominant global market share, the company has a strong history of returning capital to investors.

SMC is a Tokyo-domiciled industrial automation company providing pneumatic control systems to factory floors around the world. The company reported disappointing results for its most recent quarter. SMC has begun to see a recovery in demand for electrical machinery and electric vehicle-related industry in the greater China region, but semiconductor demand in Japan, North America and Korea is still tepid. We continue to like its dominant market position, and the company has been gaining market share despite the weakness in its end markets.

Germany based-FUCHS is a global manufacturer and distributor of high-value-add industrial lubricants for a range of applications. The company reported weaker-than-expected results for its most recent quarter due to the impact of tariffs, low industrial output in Europe and geopolitical tensions. We believe these challenges are cyclical in nature, and we continue to like the company’s ability to generate cash flow and grow its business. With concentrated family ownership and a limited free float that restricts buybacks, management has consistently returned capital to shareholders through dividends.

Consumer health company Haleon was spun off from pharmaceutical giant GSK in 2022 and owns a diverse portfolio of brands that include Tums, Advil, Sensodyne and Centrum. The company reported disappointing sales for its most recent quarter and reduced its forward revenue guidance due to softening consumer and retail demand in North America. We like Haleon’s portfolio of brands and its focus on improving productivity and returning cash to shareholders through dividends and share repurchases.

Brazilian brewer Ambev, a subsidiary of Anheuser-Busch InBev, is the largest brewer in Latin America. The company reported weaker-than-expected sales for its most recent quarter due to lower consumption caused by unfavorable weather; this, however, was mitigated by Ambev’s focus on reducing expenses. We appreciate Ambev’s dominant position in markets with favorable demographics and solid operations that are able to deliver strong cash flows to support a strong balance sheet.

We appreciate your confidence and thank you for your support.

Sincerely,
First Eagle Investments

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Asset Class
Equities