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Graham Griffin
Graham Griffin
Articles (170) 

Value Investing Live Recap: Matthew McLennan

Key takeaways and questions

January 20, 2021 | About:

GuruFocus had the pleasure of hosting a presentation with Matthew McLennan, head of the Global Value team and portfolio manager of the Global Value, International Value, U.S. Value and Gold Strategies for First Eagle Investment (Trades, Portfolio).

He joined First Eagle in September 2008 to lead the Global Value team. Previously, McLennan worked for Goldman Sachs Asset Management in London, where he served as co-portfolio manager of Global Equity Partners, a group he co-founded in 2003 that ran a focused global equity portfolio for offshore private wealth clients.

Earlier in his career, McLennan was equity chief investment officer of the Investment Strategy Group for Goldman Sachs' private client business. He joined Goldman Sachs in Sydney in 1994. McLennan started his career in 1991 in Brisbane, Australia, with the Queensland Investment Corporation and was ultimately responsible for the firm's international equity exposure.

He was born in Rabaul, Papua New Guinea, and grew up in Queensland, Australia. He received his bachelor of commerce with first-class honors and master of international commercial law from the University of Queensland. McLennan holds the chartered financial analyst designation.

McLennan is interested in the field of education, and he is a trustee (and former president of the board of trustees) of the Trinity School in New York City. He serves on the Board of Dean's Advisors of the Harvard T.H. Chan School of Public Health and as a board member of the University of Queensland in the United States of America. He also serves on the advisory council of the Stevanovich Institute on the Formation of Knowledge at the University of Chicago and is a board member of the Library of America.

Watch the full presentation here:

Key takeaways

McLennan started his presentation with a brief description of how he was thrown into the deep end when he started at First Eagle in 2008 as the financial crisis was beginning. He explained that he had the privilege of learning from Jean-Marie Eveillard.

The Global Value Fund provides a flexible investment platform in equities and bonds. McLennan explained how the fund invests across multiple forms of capitals and also uses gold as a potential hedge.

Overall, the firm is extremely long term, with investments averaging a 10-year holding period. He explained that cash is also held at times for deferred purchasing power should something arise in the future that peaks interest. The team at First Eagle operates under the belief that the price-sensitive hunt for scarcity value is the building block for resilient wealth creation.

In the second portion of his presentation, McLennan dove into the current state of the market and examined the effects of credit spreads recovering. He explained that there is a pronounced vulnerability to deflation during large fluctuations in the market.

Before diving into gold, McLennan rounded out the presentation by examining First Eagle's investment process. Here he explained the four key pillars that make up their strategy. These pillars are security selection, use of cash and cash equivalents, using gold as a potential hedge and, finally, currency management.

In short, the team strives to produce investments in shares that are well-positioned, well-managed and well-capitalized while they are trading at a market price below estimates of their intrinsic value. Operating based upon this margin of safety, the team only commits capital when there is a meaningful difference in valuation and price.

Stocks

During his presentation, McLennan used several concrete examples of investments to drive home some of his key points. He first looked to Mitsubishi Estate Co. Ltd. (TSE:8802) to highlight a key real estate holding for the firm.

The Mitsubishi Estate holding represents key land holdings in the middle of Tokyo. One of the company's holdings maintains a thin strip of land that commands the highest office rents in all of Japan. McLennan explained that private valuations far exceed the price the stock is trading at.

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The second example McLennan looked at was a holding in Exxon Mobil Corp. (NYSE:XOM), which he explained was an advantage resource holder. He explained that the company manages hard to replicate resources that will likely give them an edge over an extended period of time.

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Questions

The first question posed to McLennan asked for his opinion on Boston Properties Inc. (NYSE:BXP). He explained that it is a relatively new position for the firm that was initiated within the last year. The reason for the investment is that he believes that people will eventually move back into office spaces and resume work in pre-pandemic formats. By purchasing these office building holders, the firm will be uniquely positioned to benefit from this return.

At the same time, McLennan explained that the team does have investments in technology companies that have benefitted from the transition to cloud computing and digital interactions. He explained that it is hard for the team to find a balance in the rate of value creation from these types of companies and the price that they are commanding, which makes it difficult to find a good margin of safety.

Another question to spark a deep response from McLennan came from an audience member asking how he goes about weighting positions within a portfolio based upon analysis and risk mitigation. McLennan explained that the team at First Eagle is positioned uniquely to manage positions.

Due in part to operating on a global scale, the team is able to be both diversified and selective in its investments. They generally have over 100 positions in their portfolio so these positions remain small, which allows the team to avoid one position spoiling the whole portfolio. Positions can grow larger in the portfolio as more evidence is gathered that they will pan out over time.

Disclosure: Author owns no stocks mentioned.

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