A Bull for Bullion
Mutual fund maestro Jean-Marie Eveillard retired in 2004, with an enviable record: In 25 years running the First Eagle Global Fund (SGENX ), he bested the Standard & Poor's 500-stock index by an average of two percentage points a year. French-born Eveillard returned to service in March when his successor departed, and the $22 billion fund has beaten the S&P by a percentage point since. Eveillard, who also manages First Eagle's $11 billion Overseas Fund, is known for the unusual practice of putting gold in his portfolios. Contributing Editor Christopher Farrell chatted with Eveillard about his investments.
Why gold in an equity portfolio?
It's an insurance policy. The idea is that when the equity markets go down, the price of gold will go up. So 7% of the Global Fund's and Overseas Fund's assets are in gold.
Hasn't that insurance premium gone up a lot?
In 2001, gold was $250 an ounce. Now it's over $800. We could come to the conclusion that the insurance premium is too high or even the insurance is no longer required.
In what form do you own the gold?
Most of it is bullion, with some mining shares. The bullion is in the vaults of HSBC (HBC ).
Isn't it expensive to own real gold?
We hold so much bullion that the cost of storing it is minimal. For the individual, one of the gold exchange-traded funds is better. You could buy mining shares, but then you have mining risk.
How about cash?
We probably have too much cash now: about 15% in the Overseas Fund and 20% in the Global Fund. The reason is that we aren't coming up with enough good ideas on how to invest it.
Why is that so?
After five years of a bull market, bargains are few. I don't want to play the "relative value" game. I sold Japanese stocks in the summer of 1988. In early 1989 I'd get calls from someone saying: "The Tokyo market is at 85 times earnings, and I've found something for you at 65." That's not good enough. Now it's easier to come up with investments in Japan than in the U.S. and Europe.
What attracts you to Japan?
Successful industrial companies. For instance, we have a stake in Shimano. It owns 80% of the market for high-end bicycle parts. No pun intended, but it's a cyclical business, and it's not a fast-growth business. It's a company, to quote Warren Buffett, with a "big moat."
What's your view on Chinese stocks?
We don't trust its markets, so we own Chinese stocks indirectly through stocks in Singapore and Hong Kong, or through Japanese companies that do business with China. We also own Rémy Cointreau Group. The Chinese love their cognac.
By Christopher Farrell