When I first encountered 1st Eagle Mutual Funds, I was intrigued by their contrarian investment approach, which differs from many mainstream mutual funds that chase short-term trends. These funds aim to provide investors with long-term capital appreciation and capital preservation, something that resonates strongly with me in today’s volatile markets. In this article, I’ll share what I’ve learned about 1st Eagle Mutual Funds, explaining their strategies, portfolio composition, risks, and performance with examples and mathematical clarity.
Table of Contents
What Are 1st Eagle Mutual Funds?
1st Eagle Mutual Funds are a suite of investment vehicles managed by 1st Eagle Investment Management, a US-based firm with roots dating back to 1987. The firm specializes in value-oriented investing. Unlike many funds that focus heavily on growth stocks or index tracking, 1st Eagle funds pursue undervalued assets globally, including equities, bonds, and alternative investments.
I find their commitment to capital preservation—avoiding permanent losses—is particularly important in uncertain economic environments like those in the US over the past decades, characterized by inflation spikes and market corrections.
Investment Philosophy: Contrarian Value Approach
1st Eagle’s core investment philosophy hinges on value investing, influenced by principles of Benjamin Graham and Warren Buffett but with a global and multi-asset twist.
They look for assets trading at a discount to their intrinsic value. Intrinsic value means the present value of an asset’s expected future cash flows. Mathematically, intrinsic value V can be estimated using the Discounted Cash Flow (DCF) method as:
V = \sum_{t=1}^{n} \frac{CF_t}{(1 + r)^t}Where:
- CF_t is the cash flow in year t
- r is the discount rate (reflecting risk and opportunity cost)
- n is the number of years considered
When the market price P of the asset is below V, it signals a buying opportunity. This fundamental difference from momentum or growth investing often protects investors from bubbles and sharp drawdowns.
Types of 1st Eagle Mutual Funds
Here’s an overview of some key 1st Eagle funds I analyzed:
| Fund Name | Asset Focus | Investment Style | Typical Holdings | Risk Profile |
|---|---|---|---|---|
| 1st Eagle Global Fund | Global Equities & Bonds | Deep Value, Multi-Asset | Stocks, Bonds, Gold | Moderate |
| 1st Eagle Gold Fund | Precious Metals | Gold & Gold-related Securities | Physical Gold, Mining Stocks | High (Commodity Exposure) |
| 1st Eagle Overseas Fund | International Equities | Value in Developed & Emerging Markets | International Stocks | Moderate-High |
Example: 1st Eagle Global Fund
This fund seeks undervalued companies and sovereign bonds worldwide. It often holds cash or gold as a hedge, making it less volatile compared to pure equity funds.
Performance Analysis
From my research, 1st Eagle funds have delivered competitive long-term returns with lower volatility. For example, the 1st Eagle Global Fund’s 10-year annualized return as of 2024 was about 7.2%, compared to the S&P 500’s approximate 10.5% over the same period.
However, the risk-adjusted returns measured by the Sharpe ratio tell a more balanced story. The Sharpe ratio is calculated as:
S = \frac{R_p - R_f}{\sigma_p}Where:
- R_p = Portfolio return
- R_f = Risk-free rate (e.g., 3-month Treasury yield)
- \sigma_p = Standard deviation of portfolio returns
A higher Sharpe ratio indicates better risk-adjusted performance.
| Fund Name | Annualized Return | Annualized Volatility | Sharpe Ratio (Risk-Free Rate = 2%) |
|---|---|---|---|
| 1st Eagle Global Fund | 7.2% | 9.5% | 0.53 |
| S&P 500 | 10.5% | 15.0% | 0.57 |
While the 1st Eagle Global Fund returns slightly lag the S&P 500, its volatility is much lower, offering a smoother ride for investors who prioritize capital preservation.
Portfolio Construction and Asset Allocation
1st Eagle Mutual Funds use a flexible approach in portfolio construction. They avoid rigid asset class weightings and adjust exposure based on valuations and macroeconomic views.
A typical allocation for the 1st Eagle Global Fund might look like this:
| Asset Class | Allocation (%) |
|---|---|
| Equities (Global) | 50-60 |
| Sovereign and Corporate Bonds | 20-30 |
| Cash and Cash Equivalents | 10-20 |
| Gold and Precious Metals | 5-10 |
This allocation can shift significantly if market valuations change, illustrating an active risk management style.
Risks to Consider
Despite their conservative philosophy, 1st Eagle Mutual Funds face risks:
- Market Risk: Although mitigated, the funds are still subject to equity market downturns.
- Currency Risk: Global exposure means currency fluctuations affect returns.
- Commodity Risk: Funds with gold exposure can be volatile if gold prices swing.
- Interest Rate Risk: Bond holdings are sensitive to interest rate changes, especially in a rising rate environment common in the US lately.
How 1st Eagle Funds Fit in a US Investor’s Portfolio
Given the US economic backdrop—higher inflation, Fed rate hikes, and geopolitical uncertainty—I appreciate how 1st Eagle funds offer diversification beyond US equities and bonds.
For example, combining 1st Eagle Global Fund with a US equity index fund can reduce overall portfolio volatility while maintaining growth potential.
Hypothetical Portfolio Comparison
| Portfolio | Expected Return | Expected Volatility |
|---|---|---|
| 100% S&P 500 | 10.5% | 15.0% |
| 70% S&P 500 + 30% 1st Eagle Global Fund | 9.1% | 11.3% |
This shows that adding 1st Eagle’s fund reduces volatility by 25% with a modest drop in expected return.
Calculating Expected Portfolio Return and Volatility
The expected return E(R_p) of a two-asset portfolio is:
E(R_p) = w_1 E(R_1) + w_2 E(R_2)Where:
- w_1, w_2 are weights of assets 1 and 2
- E(R_1), E(R_2) are expected returns
Portfolio volatility \sigma_p is:
\sigma_p = \sqrt{w_1^2 \sigma_1^2 + w_2^2 \sigma_2^2 + 2 w_1 w_2 \rho \sigma_1 \sigma_2}Where:
- \sigma_1, \sigma_2 are standard deviations
- \rho is the correlation coefficient between the two assets
Assuming:
- E(R_1) = 10.5%, \sigma_1 = 15% (S&P 500)
- E(R_2) = 7.2%, \sigma_2 = 9.5% (1st Eagle Global Fund)
- Correlation \rho = 0.6
- Weights: w_1=0.7, w_2=0.3
Then,
E(R_p) = 0.7 \times 10.5% + 0.3 \times 7.2% = 9.1% \sigma_p = \sqrt{0.7^2 \times 0.15^2 + 0.3^2 \times 0.095^2 + 2 \times 0.7 \times 0.3 \times 0.6 \times 0.15 \times 0.095} \approx 11.3%This calculation illustrates the benefits of diversification through 1st Eagle funds.
Fees and Expenses
Fees are a crucial factor when evaluating mutual funds. 1st Eagle funds generally charge an expense ratio between 0.85% and 1.2%, slightly higher than typical index funds but reasonable for active, global value strategies.
Final Thoughts
In my view, 1st Eagle Mutual Funds offer a disciplined, value-focused alternative to conventional US equity and bond funds. Their global approach, focus on capital preservation, and inclusion of gold as a hedge make them particularly relevant in today’s uncertain US macroeconomic environment.
