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Search for Yield Ends With First Eagle Funds

By John Sullivan

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It’ll be a good holiday for John Arnhold and his team at First Eagle Investment Management. The fund family announced on Wednesday it will mark the five-year anniversary of its First Eagle High Yield Fund (FEHIX) with a corresponding five-star rating from Morningstar.

The fund has $668 million in assets (as of Nov. 30, 2012), and has returned an astounding 13% annually since it was launched in November 2007 at Dwight Asset Management. First Eagle Investment Management began advising the fund last year, and it has been managed by Edward Meigs and Sean Slein since inception.

“Edward and Sean have an investment philosophy steeped in attempting to preserve capital and maintain purchasing power,” Arnhold, First Eagle’s chairman and chief investment officer, told AdvisorOne. “They’re not pressing for yield, and can take a longer view. But we have a margin of safety built in to the price we’re willing to pay.”

Arnhold noted that as of Sept. 30, the fund had an average maturity of just over five and a half years and an average duration of just over three years, although adding in coupons brings the horizons down somewhat.

“We look at bottom-up security selection,” he added. “And we rotate risk depending on where we are in the market cycle. In a deteriorating environment, we go with higher quality issues with shorter maturities. Likewise, if we’re at the beginning of a recovery, we’ll move to lower quality issues with longer time horizons.”

In addition to its five-star rating, the fund is ranked first among 450 high yield bond funds for the 5-year period ended Nov. 30, 2012, and was named the 2011 Best High Current Yield Fund by Lipper.

The High Yield investment team has worked together continuously for over a decade and through two full credit cycles. Meigs and Slein are also co-portfolio managers of the First Eagle Global Income Builder Fund along with Giorgio Caputo and Robert Hordon.

“Their track record worked very well with ours, and how we run things here,” Arnhold concluded. “The returns they, and we, get are based on reasonable yield with a margin of safety. It’s one reason why the fund was able to preserve capital throughout 2008 better than the indices and better than it competitors.”

The First Eagle High Yield Fund seeks to provide a high level of current income. It maximizes risk-adjusted returns by modifying risk exposure throughout the high yield credit cycle.