International Value Strategy

Investment Philosophy

The International Value team believes there is a persistent market failure to recognize companies’ intrinsic value – a failure it attempts to exploit through a bottom-up, fundamental, benchmark-agnostic investment approach.

Investment Process

The fundamental basis of the investment process has remained constant since the formation of the Global Value team. The team looks for opportunities in companies that have temporarily disappointed investors; industries in turmoil or out of favor; and countries in economic downturns or overlooked by the market.

Analyze, Understand Business Models

Thoroughly understand a company and the market in which it operates. The team's document-driven analysis examines:

  • A company's market share
  • The nature of its products and its business contingencies
  • Other critical factors.

Recast Financial Statements

Financial statements are recast because:

  • Conservative accounting practices can mask the true earnings power of a company
  • Likewise, accounting practices are sometimes too liberal

Goal: to uncover a company's true economic earnings using only demonstrated results.

Calculate Intrinsic Value

The team places great emphasis on:

  • Balance sheet valuation (such as Enterprise Value to Asset Replacement Value)
  • Cash flow valuation (such as EV/EBIT)

Investments are made based on significant discounts to what is believed to be a company's intrinsic value.

Typically Invest for Long Term

The team typically seeks at least a 30% discount to what they believe is a company's intrinsic value

  • They seek further protection by determining a margin of safety in each holding
  • Viewed as a form of protection against uncertainty in a fundamentally unknowable future.
 

The International Value strategy may also invest in non-equity securities in an attempt to help preserve capital. These include:

Competitive Advantages

International Value Performance

International Value Annual Returns (%) - as of 3/31/12

International Value Annual Returns (%)

■ International Value — Gross of Fees
■ International Value — Net of Fees


International Value Trailing Returns (%)

Period: 9/1993 – 3/2012 YTD 1 Year 3 Year 5 Year 10 Year Since Inception
International Value - Gross 9.00 1.67 19.22 5.20 13.91 13.59
International Value - Net 8.80 0.91 18.33 4.41 13.06 12.74
MSCI EAFE Index (Net) 10.86 (5.77) 17.13 (3.51) 5.70 4.56
Excess Gross Return (1.86) 7.44 2.09 8.71 8.21 9.03
MSCI EAFE Value (Net) 9.72 (7.83) 16.50 (5.18) 5.80 5.75
Excess Net Return (2.06) 6.68 1.20 7.92 7.36 8.18

 




International Value Disclosures

  Composite Assets Annual Performance Results
Year End Total Firm Assets (millions) USD (millions) Number of Accounts Composite Gross Composite Net MSCI EAFE (net) Composite Dispersion
2011 59,646 10,329 6 (4.52) (5.23) (12.14) N.A.
2010 51,961 9,967 Five or Fewer 20.78% 19.88% 7.75% N.A.
2009 38,910 7,494 Five or Fewer 22.21% 21.30% 31.78% N.A.
2008 31,605 6,261 Five or Fewer (19.92%) (20.52%) (43.38%) N.A.
2007 43,879 10,051 Five or Fewer 9.41% 8.59% 11.18% N.A.
2006 43,089 12,317 Five or Fewer 24.58% 23.65% 26.34% N.A.
2005 35,210 10,113 Five or Fewer 18.64% 17.76% 13.55% N.A.
2004 26,315 8,298 Five or Fewer 23.84% 22.91% 20.25% N.A.
2003 15,481 5,455 Five or Fewer 43.59% 42.52% 38.59% N.A.
2002 6,703 1,334 Five or Fewer 14.06% 13.21% (15.94%) N.A.
2001 5,274 563 Five or Fewer 6.95% 6.15% (21.44%) N.A.
2000 5,944 419 Five or Fewer 7.18% 6.38% (14.17%) N.A.
1999 7,101 498 Five or Fewer 34.97% 33.96% 26.96% N.A.
1998 3,354 603 Five or Fewer 3.85% 3.07% 20.00% N.A.
1997 2,596 964 Five or Fewer 4.30% 3.52% 1.78% N.A.
1996 1,685 850 Five or Fewer 16.02% 15.16% 6.05% N.A.

N.A. — Information is not statistically meaningful due to an insufficient number of portfolios in the composite for the entire year.

International Value Composite contains fully discretionary accounts invested primarily in small and medium size companies traded in mature markets and may invest in emerging markets. Prior to September 14, 2009, the composite was named Diversified International. For comparison purposes, the composite is measured against the MSCI EAFE (Net) Index. Returns include the effect of foreign currency exchange rates. The exchange rate source of the composite is Bloomberg 4 pm EST. The exchange rate source of the benchmark is Reuters 4 pm GMT. The asset mix of the accounts in the composite may not be comparable to the MSCI EAFE (Net) Index. Indices do not incur management fees or other operating expenses. Investments cannot be made directly into an index.

Prior to December 7, 2009, First Eagle Investment Management, LLC was known as Arnhold and S. Bleichroeder Advisers, LLC.

First Eagle Investment Management, LLC has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®). First Eagle Investment Management, LLC has been independently verified for the periods January 1, 1996 through December 31, 2011.

Verification assesses whether 1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and 2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The International Value Composite has been examined for the periods January 1, 2000 through December 31, 2011. The verification and performance examination reports are available upon request.

First Eagle Investment Management, LLC is an independent SEC registered investment adviser. The firm maintains a complete list and description of composites, which is available upon request.

Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. Total returns of the composite and benchmark are presented net of estimated foreign withholding taxes on dividends, interest, and capital gains. Withholding taxes may vary according to the investor’s domicile. MSCI uses withholding tax rates applicable to Luxembourg holding companies, as Luxembourg applies the highest rate. Derivatives may make up a material part of the composite strategy. Past performance is not indicative of future results. The three-year annualized ex-post standard deviation as of December 31, 2011 for the International Value Composite is 13.29% and 22.43% for the MSCI EAFE Index (Net).

The U.S. Dollar is the currency used to express performance. Returns are presented gross and net of management fees and include the reinvestment of all income. Net of fees performance was calculated using the highest applicable management fee of 0.75% applied monthly. Actual returns will be reduced by investment advisory fees and other expenses that may be incurred in the management of the account. The investment management fee schedule is 0.75% on assets. Actual investment advisory fees incurred by clients may vary. The collection of fees produces a compounding effect on the total rate of return net of management fees. As an example, the effect of investment management fees on the total value of a client’s portfolio assuming a) quarterly fee assessment, b) $1,000,000 investment, c) portfolio return of 8% a year, and d) 1.00% annual investment advisory fee would be $10,416 in the first year, and cumulative effects of $59,816 over five years and $143,430 over ten years. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.

The International Value Composite was created January 1, 2002. Performance presented prior to January 1, 2000, is for a U.S. mutual fund that was managed by Jean-Marie Eveillard while he was affiliated with another firm and had portfolio management responsibility. First Eagle Investment Management, LLC acquired this prior firm and became investment adviser to the U.S. mutual fund on December 31, 1999. On March 27, 2009, Mr. Eveillard transitioned from having portfolio management responsibilities to a senior advisory role to First Eagle Investment Management, LLC, a position he also held from January 1, 2005 to March 23, 2007.