Jean-Marie Eveillard

Jean-Marie Eveillard is a French-born asset manager (i.e., one who practices asset management), noted for his value investing in the spirit of Graham and Dodd.

Background and history

Born in Poitiers, France in 1940, Eveillard graduated from Ecoles des Hautes Etudes Commerciales, an esteemed French graduate school for economic studies. Eveillard was the Portfolio Manager of the First Eagle Global Fund, the First Eagle Overseas Fund, the First Eagle Gold Fund, and the First Eagle U.S. Value Fund for over 30 years and now serves as a Senior Adviser to the First Eagle Fund's portfolio management team. Eveillard is widely regarded by the investing community as a leader in the field of value investing, as evidenced by his market-beating record over an entire economic cycle, as evidenced by his numerous appearances on Bloomberg Television and other business news networks, as evidenced by his funds amassing billions of dollars in assets under management and maintaining high net inflows when he managed said funds, and as evidenced by the success of his successors, including Charles de Vaulx who left the firm.^[1] (NB: for non-professionals needing data on assests under management and net inflows, Morningstar, Lipper and SEC records can provide a trail, for either First Eagle funds or at Charles de Vaulx's International Value Advisors funds). Eveillard also has won numerous accolades, for example, winning Morningstar's "International Stock Manager of the Year" in 2001 with his co-manager, Charles de Vaulx. Morningstar has also made him one of five finalists for Foreign Fund Manager of the Decade. ^[2]

After reading "The Intelligent Investor" (regarded by Eveillard as the best book ever written about investing) and "Securities Analysis" by Benjamin Graham in 1968, Eveillard's affinity for value investing began to flourish. Eveillard on Bloomberg TV has described the evolution of value investing as "a big tent that accommodates many different people. At one end of the tent there is Ben Graham, and at the other end of the tent there is Warren Buffett." Eveillard's self-reported style "floated between the two." ^[1]

Eveillard started his career in 1962 with Societe Generale, one of France's largest banks, until relocating to the United States in 1968. Two years later, he began as an analyst with the SocGen International Fund. In 1979, he was appointed as the portfolio manager of the SocGen International Fund, later named the First Eagle Global Fund [1]. He then went on to manage the First Eagle Overseas [2] and First Eagle Gold [3] Funds at their inception in 1993, as well as the First Eagle U.S. Value Fund [4], which began in September 2001. Mr. Eveillard left his portfolio management duties on December 31, 2004 but continued to serve as Senior Vice President and Senior Adviser to the funds.

Eveillard's first transition into retirement in December 2004 was not without hiccups. His hand-picked successor Charles de Vaulx left the First Eagle family. Eveillard then returned to the funds and was joined in his portfolio management duties by Matthew McLennan, Abhay Deshpande and a team of analysts. He retired from daily portfolio management and transitioned to a Senior Adviser role in March 2009 after beating out 99% of his peers for the year.^[3] Eveillard continues to be a member of First Eagle Fund's Board of Trustees and a Senior Vice President of Arnhold and S. Bleichroeder Advisers, LLC.

Portfolio management

The portfolios' value tilt tended to find Eveillard investing into firms with stronger cash flows which happened to be selling at some discount, and where those cash flows often turned into higher yields for investors. So his portfolios tended to have higher yields than the index. From his history at First Eagle (1979-2004 and 2006-2008), he also tended to keep a goodly amount of cash on hand. Note that his TV appearances on Bloomberg clarified his large cash position as "a pure residual of the investment process," i.e., he was not finding enough value to invest in at that time. Eveillard's own media appearances also leave a telling trail that suggests a STRONG risk-averse temperament. Notably, Eveillard's funds tended to underperform in bull markets (for example, the dot-com bubble), and out-perform during bear markets. Eveillard avoided much of the impacts of the 2000-2002 stock market correction and the post-Lehman credit crash, when a number of his funds outperformed by large margins. Additionally, Eveillard tended to keep some small part of the portfolios in gold and in bonds, thus providing additional hedges to the equity volatility. Eveillard viewed gold as insurance against "extreme outcomes" and typically held between 5-10% in the Global Fund. Unsurprisingly, these non-correlating assets tended to give the portfolios low R-squareds to most indexes. The combination of large cash holdings with stocks paying above average dividends with some other non-correlating assets created low Beta portfolios with market-beating Sharpe ratios.^[4][5]

Of course, past performance is no guarantee of future returns, but some academic literature (see, for example, "A Quantitative Approach to Tactical Asset Allocation" [5]) does seem to suggest that low-beta asset allocations do provide greater Sharpe ratios over time. Counter to that literature is the premise that "there is no free lunch" and that any outperformance will eventually disappear as copy-cats reduce margins of outperforming managers. Finally, behavioral economics clarifies that the reason why there may not be as many copy-cats of value investors as the efficient-market theory may predict, is that we humans are not emotionally attracted to the deferred gratification and the contranian natures that value investors display. Notably, there is literature pointing to how momentum investing (much the opposite to Eveillard's value investing) does work for periods of time shorter than a full economic cycle. For example, from wikipedia's entry on Momentum investing "[E]conomists have trouble reconciling this momentum investing phenomenon using the efficient-market hypothesis." Or, one can examine the momentum variable results in "Luck Versus Skill in the Cross Section of Mutual Fund Returns" [6] -- a paper whose findings would suggest that skilled or lucky alpha producers, like Eveillard, represent at most 3% of the fund industry.

The above analysis correctly points out that most of Eveillard's funds underperformed (albeit midly, e.g., about -3.5% average per annum over the 2003–2007 years ^[3]) their benchmark during up markets, where one should note that historically, stock markets tend to be up about seven out of ten years. In terms of behavior then, the subject human and emotional creature "should be willing to suffer underperformance" for an average of seven years to potentially (and only POTENTIALLY!) enjoy strong outperformance thereafter? Behaviorial studies show this uncertain and very delayed gratification is highly unusual. Thus, behavioral economics provides a good theoretical grounding for why Eveillard and his ilk of value investors that do produce alpha, as rare as they are, may be more capable of repeating outperformance than random luck would suggest; few of the emotional humans have the discipline to copy the value investor's patience. Most would be more tempted to dabble in momentum investing, technical analysis or speculation, where Eveillard has said these concepts are really much closer to one. Eveillard's strong, long-term record disputes the efficient market view and begs us to examine our investment short-comings with the addition of behavioral economics.

External links

• Fortune, 2007: A Value Maestro's Encore Fortune, 2007: A Value Maestro's Encore and picture of Jean-Marie Eveillard
• Morningstar: 2008 Runner-Up for International Manager of the Year
• Graham and Dodd Newsletter, Winter 2007/2008: Staying Power: Jean-Marie Eveillard
• GuruFocus.com Profile

References