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Morningstar FundInvestor
October 2015
private equity firms, which means the family that
founded First Eagle will be a minority shareholder
for the first time. This could put the firm’s corporate
culture at risk.
“The firm has its merits. It offers a limited number of
mutual funds, all of which share a distinctive value
orientation. Four of the funds—Global, Overseas, U.S.
Value, and Gold—are run by its global-value team.
First Eagle High Yield is run by a fixed-income group
that First Eagle absorbed in
2011
, and the family’s
newest offering, First Eagle Global Income Builder, is
run by both the global-value team and the fixed-
income team. First Eagle Fund of America is run by
a subadvisor.
“The firm has moved past upheaval before, especially
after a
2007
change on the global-value team. The
team has been relatively stable since then, though
veteran manager Abhay Deshpande departed in
2014
and there has been some analyst turnover. One other
negative: First Eagle Global has been allowed to grow
to more than
$45
billion, impeding its ability to take
sizable stakes in smaller-cap stocks (typical here under
former longtime skipper Jean-Marie Eveillard).”
PIMCO One Year Later
In the initial wake of Bill Gross’ resignation from
PIMCO
—less than nine months after
CEO
and co-
CIO
Mohamed El-Erian himself decided to leave—the
biggest questions revolved around the future of the
firm, when and how it would stabilize, and whether it
would see an exodus of investment staff. While those
questions aren’t entirely settled, there have been
some good signs. Here is Eric Jacobson’s take on it:
“Once the largest mutual fund in the world,
PIMCO
Total Return
PTTRX
has since shrunk considerably,
recently sliding under the
$100
billion mark as
combined outflows from Sept.
1
,
2014
, through August
2015
totaled roughly
$124
billion. (Gross left on Sept.
26
,
2014
, but outflows over the last three days of the
month were massive.) Those redemptions have abated
some—the
$2
billion that left in August
2015
was
the lowest monthly figure since Gross resigned—and
shouldn’t be hard for a firm with
PIMCO
’s significant
resources to manage at that level. But the outflows
haven’t yet stopped, much less reversed. From May
through August
2015
, they comprised nearly
8%
of its
assets, while flows out of the overall intermediate-term
bond Morningstar Category were a more modest
3
.
5%
.
“
PIMCO
Total Return’s portfolio certainly looks different
from a year ago. However, that’s to be expected given
the firm’s evolving macro view. There’s little evidence,
meanwhile, that group head Dan Ivascyn (Gross’
successor in the
CIO
role) and this fund’s management
crew are really doing anything significantly different
from what Bill Gross had done while in charge. That’s
not surprising, given that they were a crucial engine
behind his success for so many years. The fund boasts
notable large-currency and emerging-markets bonds
positions, but it is reassuring that, while there are limi-
tations to all models, stress tests, and expected levels
of volatility,
PIMCO
has demonstrated a knack as good
as any for developing useful tools while not overre-
lying on any of them to be fail-safe.
“The most notable changes in the portfolio’s exposures
have been adjustments to the fund’s currency
exposures, which comprised a short position against
foreign currencies totaling
11
.
2%
at the end of
August
2015
. By contrast, until right after Gross’ depar-
ture at the end of September
2014
, the fund’s overall
currency exposure hadn’t deviated by more than
5%
in
either direction around the dollar since August
2011
and most recently hadn’t crossed more than
1
.
5
percen-
tage points.
“For those with a long-enough memory, the specter of
that much currency risk in a core bond fund can
easily become a source of angst. Currencies can go
through long periods of muted volatility, but when
they are volatile they can be much more so than bonds.
In the early
1990
s, for example, the Japanese yen
posted rolling three-year standard deviations in the
10%
range—already well ahead of most bond
indexes—and spiked up to around
16%
thanks in
large part to an Asian crisis set off in part by the
devaluation of the Thai baht in
1998
. The euro has
had its moments, too, with its trailing volatility
briefly hitting similar heights in
2011
around the time
that trouble in Greece began to call into question
the future of the euro.”
K