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Bram de Haas
Bram de Haas
Articles (380)  | Author's Website |

First Eagle's Matthew McLennan Sees Non-US Bank Performance as a Warning Sign

A summary of the investor's Bloomberg interview

July 25, 2019 | About:

First Eagle Investment is a value-oriented firm with a focus on absolute long-term performance. The firm prioritizes preserving capital, applying bottom-up fundamental analysis to reduce risk. The portfolio managers actively visit companies and talk to managers to build first-hand knowledge of their investments. Stocks whose intrinsic value and long-term potential outweigh market risk make it into the portfolio. A recent Bloomberg interview with First Eagle's Matt McLennan was posted to the firm's website on July 24. You can watch the full clip here. Here's a summary of McLennan's remarks:

Value space

When asked about the underperformance of the value investing style versus growth,  McLennan said:

"Trees don’t grow to the sky. No one investing style will always be in favor. We don’t define value purely on statistical terms. We spend a lot of time thinking about intangible as tangible assets. That makes our portfolio look quite different than if you were only thinking about price-book metrics." 

This echoes Bill Nygren's views on the subject.

Inverted curve

One of the defining features of the last six months is the inverted yield curve. Previously, value stocks underperformed growth stocks prior to periods of yield curve inversion.

Cyclical businesses also seem to be pricing in warnings of a more difficult environment for earnings.

Bond and equity markets have already priced in trade issues and pressure on tech stocks from the regulatory side. It is disturbing to McLennan that banks outside of the U.S. are trading distressed at the peak of the cycle. It is a warning sign that banks are performing like this at the peak of the cycle. Also, the scope for fiscal easing is constrained.


McLellan said the firm owns gold as a potential hedge as they don’t have a short-term directional view. It is inherently resilient. Most people buy gold as a store of value. Over time, it has been a good store of value. The firm owns 70% of the portfolio in equities and they want a hedge. The managers think gold is the least bad choice.

Here, I believe McLennan is indicating the firm doesn't like bonds very much.

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About the author:

Bram de Haas
Bram de Haas is managing editor of The Special Situations Report and Founder of Starshot Capital B.V.

Visit Bram de Haas's Website

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