First Eagle Global Fund Third Quarter Commentary (Mario Gabelli)
September 30, 2011
First Eagle Global Fund (the "Fund") Class A shares returned -9.95% (excluding sales charge) for the three months ended September 30, 2011, while the MSCI World Index returned -16.61% for the period. Year to date, the Fund returned -5.26%, while the Index returned -12.20%.
For the third quarter of 2011, the German DAX decreased 31.0% and the French CAC 40 Index fell 30.7% during the quarter, while in the U.S. the S&P 500 decreased 13.9%. The Nikkei 225 Index decreased 7.1% during the period. Crude oil fell 18.4% to $79.20 a barrel, and the price of gold fluctuated—rising 26.0%, then dropping 14.5% to rest at $1,620 an ounce by quarter-end. The U.S. dollar fell 4.2% against the yen and it fell 7.5% against the euro.
On a sector basis, gold related investments contributed the most to return during the quarter. Top individual investments that added to returns were Gold Bullion, Ono Pharmaceutical (Japan), Nissin Foods Holdings (Japan), Newmont Mining Corp. (NEM) (United States), and FirstEnergy Corp. (FE) (United States).
Conversely, investments in the industrials sector detracted the most for the period. The most significant detractors from return were HeidelbergCement (Germany), Bank of New York Mellon (United States), Pargesa Holding (Switzerland), Fanuc Corp. (Japan), and Daimler (Germany).
Our currency hedges have remained fairly consistent, maintaining an approximate 40% hedge on both the yen and the euro. Because the yen is trading at a premium to its historical averages this position has cost us a bit, but we are comfortable with our rationale because we believe some of that premium is justifiable. In brief: the U.S. runs a not-insignificant account deficit (approximately 3-4% of GDP), and Japan runs a not-insignificant account surplus (approximately 3% of GDP). The result is a meaningful spread in the foreign trade position in Japan's favor, which is notable in the currency markets. If we accept that the fiscal positions of both Japan and the U.S. are comparatively dire, and we do, we feel that there is some premium warranty for the yen. We come to a similar conclusion regarding the euro. We have maintained a 40% hedge on the Euro which reflects the balance between, on the one hand, Europe's consolidated fiscal and current account position being better than the U.S. thereby warranting some premium of the currency to the dollar, and on the other hand, the political disunity within Europe that is feeding a series of local sovereign crises in peripheral markets which could imperil the European financial architecture, thereby suggesting a smaller premium for the currency than is suggested by the consolidated fundamentals alone.
As always, we appreciate your confidence and thank you for your support.