While we suffered extreme volatility, we continued to believe that for the great majority of these stocks, our investment thesis remains sound. We have been steadfast because, in our view, the idiosyncratic nature of our stock theses—the corporate change elements—have been temporarily overridden by multiple compression, as opposed to thesis erosion or significant earnings deterioration.
While this may have seemed like a replay of early 2009, the periods were actually quite different. In 2009, the financial market crisis was deeper, and it was accompanied by an economic crisis. In the fourth quarter of 2018, we saw a meaningful correction in global stock markets, but we did not see meaningful weakness in the underlying real economies of the world. Unemployment rates, for example, remained at cyclical lows. This was a moment of risk aversion rather than a crisis.
The fourth quarter of 2018 saw a dramatic change in world equity markets as the narrow bull market of the first nine months of the year gave way to a broad bear market. At the end of September, markets were at or close to their peaks, and implied volatility, as measured by the CBOE VIX Index, was in the low teens.
High yield had been more resilient earlier in the year but cracked in the fourth quarter, with lower-quality issues—CCC bonds—bearing the brunt of the market’s weakness. Outflows from ETFs and other passive structures proceeded in reasonably good order during the quarter, but we are not confident that future outflows will be managed as smoothly.
We cannot predict what will happen next in economies or markets, but 2018 had the feel of a transitional year. Volatility, which in our view, had been muted for an unexpectedly long period of time, returned in force during the year—first in February and then again in the fourth quarter.
First Eagle’s Global Fund marked its 40th anniversary on January 1, 2019. From the time that Jean-Marie Eveillard—a pioneer in global value investing—assumed leadership of the Global Fund, it has consistently employed a disciplined, benchmark-agnostic, value-oriented philosophy.
Matt McLennan reflects on his first decade managing First Eagle's Global Value team, and the challenges and potential rewards of value investing. See what excites him about the next 10 years.
Matt McLennan and Kimball Brooker, managers of First Eagle Global Fund (SGENX), recently spoke with Advisor Perspectives to discuss the Fund’s go-anywhere approach.
First Eagle’s Global Value team has adopted the value investment philosophy first developed by Benjamin Graham and later refined by Warren Buffett.
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First Eagle High Yield Fund named one of the top bond funds in IBD’s 2018 Best Mutual Fund Awards. Read the full article to learn more.
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There is growing concern that the rally in US stocks may soon fade.
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