Kimball Brooker Jr. is the Deputy Head of the Global Value Team and a Portfolio Manager for the Global, Overseas and U.S. Value Funds at First Eagle Investment Management. Sean Slein is the Co-Head of the High Yield Team and Portfolio Manager of the First Eagle High Yield and Global Income Builder Funds at First Eagle. Together they revealed their top picks and investing methodology in this exclusive interview with the Wall Street Transcript.
The two asset managers discuss in detail their methodology for creating their portfolio for the Global Income Builder (MUTF:FEBAX). “To say that necessity is the mother of invention is getting a little bit too dramatic, but in the post-global-financial-crisis world, with the repression of yields in just about every asset class, the traditional means through which people invested for income has been upended…investors…wanted another vehicle that they could use to generate income, but with a value-based philosophical approach.”
The picks were not easy to find: “…there are very few places to hide. If you look at the median multiple stocks, for example, in the S&P 500, trades at something like 25 times next year’s earnings, which is 45% higher than the 50-year average. Then you have the 10-year Treasury bond in nominal terms, which are arguably at or below long-term rates of inflation.”
The First Eagle team was dedicated to finding good investments for their customers. “The mandate is to strive to generate meaningful and sustainable income while also growing the capital base in real terms. By meaningful and sustainable income, we mean income that’s durable and also dependable.”
One example is an Australian farm supplier: “Nufarm (ASX:NUF)…has 6.375% coupon bonds that are due October of 2019. Nufarm is a global manufacturer and supplier of crop protection products, primarily in Australia, New Zealand, Europe and the Americas. They produce herbicides and pesticides…We like Nufarm because it’s a relatively defensive name…Net leverage is low at less than 2.25 times cash flow, and they generate a fair amount of free cash…Management has been focused on managing costs, which is good.”
To get detailed insights to the rest of the many First Eagle high yield value picks, read the entire interview at the Wall Street Transcript.