SAN FRANCISCO (MarketWatch) -- Mutual-fund manager Jean-Marie Eveillard is a veteran buyer of value stocks, and when he surveys the global investment landscape nowadays, years of experience make him a cautious shopper.
"This is the worst financial crisis since the Great Depression," Eveillard, who runs First Eagle Overseas Fund Sponsored by:
said in a recent telephone interview. Unlike many of his peers, Eveillard does not believe the storm is over. "The transition to a better economy may take quite a while and be quite painful," he said.
said in a recent telephone interview. Unlike many of his peers, Eveillard does not believe the storm is over. "The transition to a better economy may take quite a while and be quite painful," he said.
At 68, Eveillard has seen his share of stock-market slides and economic slowdowns. He blames this latest slump directly on former Federal Reserve Chairman Alan Greenspan. Over almost two decades leading the Fed, Greenspan, he notes, orchestrated an era of easy credit that encouraged lenders and investors to take unprecedented risk, much of it with borrowed money.
Fed policies under Greenspan, Eveillard says, precipitated "one bubble after another" -- from the implosion of technology stocks in the late 1990s to the recent real-estate price collapse and the related financial-services industry meltdown.
"In the last two or three years, the financial acrobatics were extraordinary," Eveillard said. "You could get a mortgage without having to document your income, your assets, or whether you had a job.
"When financial history is written five or 10 years down the road," he added, "Greenspan will be seen as the worst Fed chairman since the Fed was created in 1913."
Now, of course, a new Fed chairman is busily working to prime the economic pump, but Eveillard is skeptical. Ben Bernanke's measures, he said, will at best "postpone the inevitable" -- meaning a difficult period of deleveraging before the banking system can operate smoothly again.
Opportunities and knocks
Which is why, when Eveillard surveys the global investment landscape, he's not considering the traditional banks and brokerages that typically appeal to value-stock buyers.
"Banks and brokerages are disguised hedge funds," the fund manager said, disparagingly. "There is no transparency; nobody knows what's there. Some of them may already be quite bargains. The problem I have is that if I bought them, I would be buying blind."
That said, he hasn't completely ignored financial services. "The financial sector is more than just banks and brokerage firms," Eveillard pointed out. "So we bought some American Express."
The fund's recent investment in American Express Co. (is a simple story, Eveillard added. The company does a substantial fee-based business that is predictable and generates cash -- two qualities Eveillard seeks in a portfolio candidate. "We like the business model," he said, "and the stock had come down from $65 to between $40 and $45."
Still, North American firms in general don't really attract Eveillard, who is a native of France and is based in New York. Nowadays he's more interested in putting money into Japanese stocks, which make up 30% of his fund, and Western Europe, where another 30% of assets are committed.
He's also looking closely at the emerging markets of Asia. "The future lies in Asia," he said. "We have to adjust to the fact that that's where the action is going to be."
So later this summer, Eveillard will hear from one of the fund's analysts about potential investments in India.
"We'll get our heads together and try to figure out whether we like some of those businesses and whether the securities are available at reasonable prices.
"Emerging markets have come down sharply over the past nine months," he added. "I'm more impressed by Asia than by South America or Central or Eastern Europe, but we'll look there too."
That would be in keeping with Eveillard's go-anywhere investment style. He's a bargain-conscious investor who seeks shares trading at a substantial discount to his estimate of a company's intrinsic value -- the price a buyer would pay for the entire operation -- regardless of geography or industry. A cash-rich balance sheet and an underappreciated business is, for him, a winning combination.
"Many analysts and portfolio managers seem to ignore the cash on the balance sheet" in valuing a company, Eveillard said.
Japanese small-cap companies in particular, he explained, have a tremendous amount of excess cash on hand. Said Eveillard: "Cash and securities, net of liabilities, are in excess of market capitalization," which he added is like getting the business for free.
Another opportunity lies with Japanese industrial companies, Eveillard said. As examples, he points to SMC Corp. (JP:6273: news, chart, profile) , which makes pneumatic machinery, robot manufacturer Fanuc Ltd. (JP:6954: news, chart, profile) , and Keyence Corp. (JP:6861: news, chart, profile) , a maker of automated products.
"All of them are multinational, have very large global market share, and are extremely profitable," he noted. Yet their share prices, he said, are "extremely modest."
Modest can also describe the recent performance of First Eagle Overseas, but in this market that's saying a lot. The fund's Class "A" shares are off 1.6% in the 12 months through June 25 -- but that's better than 98% of the funds in its Foreign Small/Mid Value category, according to investment researcher Morningstar Inc.
Second act
"He's always had a fascinating, semi-outsider perspective," Don Phillips, Morningstar's managing director, said of Eveillard. "Good investors need to do that; they need to be somewhat detached." Eveillard will share some of those insights with attendees at the Morningstar Investment Conference in Chicago in a one-on-one conversation with Phillips on Thursday afternoon. See related story.
In fact, Eveillard had been detached from the Overseas fund itself, retiring at the end of 2004 after 25 years at the helm. He was enjoying his retirement when he was called back to duty in March 2007 after lead manager Charles de Vaulx, his protégé, left the firm.
"It's been much longer than I thought," Eveillard said of his second act. "I feel like a boxer pushed into coming back. It's nice to leave when things are going well. I'm running the risk of not doing well and in a sense doing damage to my previous reputation."
Eveillard said he's ready to pass the reins, and that an ongoing search for a successor is bearing fruit.
"I cannot be more precise, but I suspect that within the next two or three months, one or two individuals will join us and I will be able to go part-time until the spring of 2009, and then simply be available," Eveillard said.
Will the new management be as steeped in the value-investing doctrine as Eveillard?
"No two people are alike," he said. "What I can say is that he or they will have their feet firmly planted in the value camp. It will be a very similar investment approach, but maybe they'll be more concentrated, more willing to look at sectors. Everyone has his own biases." 
Jonathan Burton is an assistant personal finance editor for MarketWatch, based in San Francisco.
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