U.S. Equity Strategy

Investment Philosophy

The U.S. Equity team believes that the U.S. large-cap equity market offers significant opportunities to capitalize on short-term pricing inefficiencies resulting from corporate and global events. Specifically, the team is trying to exploit investors’ tendency to overpay for good news and over-sell on bad news.

Investment Process

Idea Generation

The majority of portfolio ideas result from corporate and global events, including:

  • Operational restructurings, financial restructurings, acquisitions, mergers, new product launches, management changes 
  • Economic cycles, currency movements, geo-political events, industry consolidations.

Research

The team uses an iterative research process that:

  • Assesses event risk 
  • Evaluates the franchise
  • Quantifies the value creation of the event
  • Evaluates the industry structure.

Stock Selection

The team looks for companies:

  • That display high/improving franchise value
  • With strong management teams that can optimize the returns of a franchise 
  • Trading at what they believe to be a significant discount to intrinsic value, which can be realized over an 18–24 month time horizon.

Trading

Active trading generates additional returns for our clients. We may trade completely in and out of several names on several occasions over the course of a year in seeking to capture alpha.

Risk Management

At the stock level:

  • Knowing holdings extremely well
  • Focusing on the franchise
  • Maintaining a liquid portfolio of primarily large-cap names.

At the portfolio level:

  • Maintaining a macro-awareness to the global markets and balancing portfolio exposures
  • Limiting exposure to any single industry to 25%–30%*
  • Limiting exposure to any single stock to 10%–12%*

*By market value. These percentages are not investment guidelines or restrictions; the portfolio may deviate from these percentages.

Competitive Advantages

U.S. Equity Performance

U.S. Equity Annual Returns (%) - as of 3/31/12

U.S. Equity Annual Returns (%)

■ U.S. Equity — Gross of Fees
■ U.S. Equity — Net of Fees


U.S. Equity Trailing Returns (%)

Period: 1/1996 – 3/2012 YTD 1 Year 3 Year 5 Year 10 Year Since Inception
U.S. Equity - Gross 9.88 1.56 22.92 2.35 7.88 11.66
U.S. Equity - Net 9.67 0.80 22.01 1.59 7.08 10.82
S&P 500 (Total Return) 12.59 8.54 23.42 2.01 4.12 7.14
Excess Gross Return (2.71) (6.98) (0.49) 0.34 3.76 4.51
Excess Net Return (2.92) (7.74) (1.41) (0.42) 2.96 3.68

 




U.S. Equity Disclosures

  Composite Assets Annual Performance Results
Year End Total Firm Assets (millions) USD (millions) Number of Accounts Composite Gross Composite Net S&P 500 Composite Dispersion
2011 59,646 1,923 18 (0.07%) (0.82%) 2.11% 0.5%
2010 51,961 2,271 19 25.40% 24.46% 15.06% 0.3%
2009 38,910 1,578 22 24.12% 23.19% 26.46% 0.6%
2008 31,605 1,103 20 (36.28%) (36.76%) (37.00%) 0.7%
2007 43,879 710 10 9.69% 8.87% 5.50% 0.6%
2006 43,089 614 9 18.88% 17.99% 15.79% 0.6%
2005 35,210 503 9 7.50% 6.69% 4.91% 0.5%
2004 26,315 440 11 15.90% 15.04% 10.88% 0.9%
2003 15,481 403 11 39.23% 38.19% 28.68% 0.5%
2002 6,703 303 11 (13.01%) (13.66%) (22.10%) 0.4%
2001 5,274 447 13 8.97% 8.16% (11.89%) 0.3%
2000 5,944 522 15 (15.59%) (16.22%) (9.10%) 2.5%
1999 7,101 999 10 26.34% 25.39% 21.04% N.A.
1998 3,354 591 Five or Fewer 43.27% 42.20% 28.58% N.A.
1997 2,596 330 Five or Fewer 29.86% 28.89% 33.36% N.A.
1996 1,685 262 Five or Fewer 29.53% 28.56% 22.96% N.A.

 


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

U.S. Equity Composite contains fully discretionary US Equity accounts invested primarily in U.S. Equities. Prior to October 1, 2003, the composite was named the U.S. Value Equity. Prior to October 20, 2008, the composite was named U.S. Large Cap Value Equity. For comparison purposes, the composite is measured against S&P 500 Index. The asset mix of the accounts in the composite may not be comparable to the S&P 500 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 claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. 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 U.S. Equity Composite has been examined for the periods January 1, 1996 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. Past performance is not indicative of future results.

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 fee performance was calculated using the highest applicable annual 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 up to $25 million, and 0.50% on assets in excess of $25 million.

The U.S. Equity Composite was created December 31, 1991. The three-year annualized ex-post standard deviation as of December 31, 2011 for the U.S. Equity Composite is 20.13% and 18.71% for the S&P 500 Index.

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. The annual composite dispersion presented is an equal-weighted standard deviation calculated for the accounts in the composite the entire year. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.