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2014 DUE DILIGENCE PRESENTATION
Matthew McLennan
First Eagle Investment Management – Portfolio Manager, Global, Overseas,
US Value, and Gold Funds, and Head of the Global Value Team
GLOBAL VALUE TEAM:
PHILOSOPHY, IMBALANCES AND PORTFOLIO CONSTRUCTION
Matthew McLennan
Tuesday, May 20th, 2014
Thank you very much, John. It's a pleasure to be here and share with you today some thoughts on how we see the world
economy. How it is that we structure our approach to investing in that environment, and how it is that we're trying to take
forward and preserve your clients' capital.
I think one of the things that's very important, when it comes to investing, is having a clear goal. Most people in today's
day and age are confused by a multitude of different metrics.
Alpha statistics. Tracking error. Various ratios. Sharpe Ratio, Treynor ratio, et cetera, et cetera.
But when you go through all that complexity and you think about what the simple needs of your clients are, the first and
most important need is to avoid the permanent impairment of capital. You've been entrusted with their hard-earned
savings. The first goal should be to not impair that; to get a return of capital.
The second goal is to produce a satisfactory real return on that capital across time. I'm going to share with you today our
approach to doing so.
There are certain core tenets of the way we think that help us in that mission. Perhaps the first is always global -- not local.
And we're going to talk more about that, today.
Secondly, that the future is uncertain. And as such, your temperament and the emotions that you bring to managing capital
are as important as your crystal ball.
You have to be willing to be patient when bargains are few and far between. And you have to have the fortitude to put
capital to work in markets that are distressed. If you have the humility to realize that the future is uncertain, you have to
have the discipline to look for a margin of safety in each investment that you make.
If you look at the track record of First Eagle across time, a lot of our outperformance has come from not being where the
future trouble would be. Be it being out of Japan in the late '80s, being out of tech, media and telecom in the late '90s,
being out of the financials in 2007. Or, more recently, in the last few years essentially being out of the BRICS. We haven't
gone where the enthusiasm is, and that's helped us preserve capital across time.
Secondly, in addition to temperament and having a countercyclical approach to committing liquidity, we have focused very
much over time on trying to get our arms around the architectural imbalances of the world. The imbalances in the financial
architecture, that is. I'm going to talk more about that. But it really does shade how we think about the world and how we
build portfolios that we think are all-weather portfolios and can endure.
As part of all of that, there's a willingness to hold cash when we can't find opportunities. Willingness to hold gold as a
potential hedge. And an acknowledgement that if the core problem in our monetary architecture is an abundance of
money, then what we need to be looking for as investors is scarcity. And scarcity, when it can be acquired with a margin of
safety in price.
These are all the principles that I'd like to touch on today.
But let me take a step back and start out somewhere else in the world. Robert talked about the fact that mutual fund
inflows have been strong today, whereas they were weak in 2009. In 2009, one of the things that we mentioned to clients
was that the risk may not be taking risk because there was obvious distress, and prices were low.
One of the other things that we mentioned to clients back in 2009 was that while everyone was focused on the deflationary
dynamic in the U.S., China had embarked upon a massive fiscal stimulus, which would be a positive demand pulse for the
world. I sort of think about how far we've come in the last five years, and how that demand impulse might actually be a
source of weakness at the margin, going forward.
I travel a lot, mostly visiting companies. But sometimes I have the benefit of traveling for other reasons. Recently I was in
China with the School of Public Health for Harvard. One of the things that we were looking into while over there was the
issue of pollution in China. On our last day in Beijing, I took this photo just out of a bus. It's not a particularly special
photo. But if you look carefully in the middle is the sun, which you could just look at directly through the pollution. The
pollution level was 400 ppm, which is the measure they use. A bad day in New York is usually 25. So it's a level of
pollution that the WHO would deem to be exceptionally hazardous.
One of the professors at the Harvard School of Public Health told me that the pollution on average in the air in Beijing is
equivalent to smoking a packet of cigarettes a day. So just living there is like smoking a packet of cigarettes a day. And
then 60% of Chinese adult males smoke on top of that.
This is not an isolated image. These are some images that have come out in recent media clips in China. Just like I was
confronted with dust on my shoes in April of 2009 when I visited Shanghai with the new construction that was taking off,
on this trip to China, I was confronted with the pollution that I saw -- and what appeared to be the limits of the current
business model for China. Of building cities and leading an export-driven model of industrialization.
But when I see something like this in traveling in the world, I try to think about what the causes are, as opposed to the
symptom itself.
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I want to share with you what I think the root causes of this pollution are, and then how that should impact upon the way
we think about investing.
At the heart of this issue is a series of global monetary imbalances. And I'll explain the linkages to you step-by-step.
This chart here shows you the current-account surplus of China over the last 20-odd years and the current-account deficit
of the United States. You can see there's a fairly even symmetry there.
If we look at the development history of China, in the wake of Deng Xiaoping's Southern Tour, the Chinese embarked
upon a model of under-valuing their currency in order to promote export growth and at the same time, they had a policy of
conscious urbanization.
Now on the surface, you'd say those imbalances have moderated dramatically. The current-account surplus in China has
gone from roughly 10% of GDP down to around 2% of GDP. The current-account deficit in the United States has gone
from 6% of GDP to roughly 2% to 3% of GDP. But part of that improvement at the margin has been driven by a slowdown in the U.S. and a continued strength in China.
If we think about the parts of the current-account deficit, it's essentially the difference between savings and investment in
the economy. When we look beneath the cyclical variations of investment and ask, "What are the structural trends in
savings?" a somewhat more disturbing picture emerges.
You can see from this chart that going back over a decade, the Chinese level of gross national savings measured in US
dollars has gone from a fraction of the U.S. to a multiple of the U.S.. Whereas, the U.S. has essentially trended sideways for
the better part of the last decade. This huge surge in Chinese gross national savings has in part been propelled by an
undervalued exchange rate. Thus, the accumulation of trillions of dollars of reserves.
Those reserves have manifest themselves in the growth of monetary stock of China. Just in parallel with the growth in
gross national savings from being a fraction of the U.S. to a multiple of the U.S., we've seen Chinese money supply -- and
here, we have it measured as M2 in U.S. dollar terms having gone from a fraction of the U.S. back in 2000 to a multiple of
the U.S., today.
It's not as though we've had a simple picture of China just playing catch-up. In certain key aggregates, savings and
investment activities, China's gone from a fraction to a multiple. In terms of its monetary aggregates, China has gone from
a fraction to a multiple. And as that kind of growth has occurred, we've seen an investment boom in China of
unprecedented historic proportion.
Roughly 50% of China's GDP has gone into investment spend. And in parallel with that, we've seen -- obviously -- the
buildout of vast manufacturing enterprise and vast creation of city landscapes in China.
Almost in an eerily-parallel format, we see the same thing mapping out in CO2 emissions in tonnage. So just as those
savings have gone from a fraction to a multiple, the stock of Chinese money supply has gone from a fraction to a multiple
of the U.S.. The level of fixed-capital investment in U.S. dollar terms has gone from a fraction to a multiple. CO2
emissions and tonnage have gone from a fraction to a multiple.
It's kind of hard to imagine a world where a country back in 2000 could have been half the CO2 emissions of the United
States and now today be twice that. That's a fourfold move in just a dozen years.
The reason I started out the discussion on China and pollution, which seems like a seemingly unrelated topic to why we're
here today, is that that trend simply cannot be extrapolated into the future. It's obvious from a common-sense standpoint
that you can't have another fourfold-growth in relative money supply investment activity and pollution going forward.
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The model that everyone's come to complacently accept in China has to change. We're already seeing, at the margin,
fissures in the Chinese growth story.
The current government is more reform-oriented in China than the previous government. But as a consequence, they've
started to impose things on the economy that are leading to a slow-down in the money-supply growth. We're now starting
to see a pretty material falloff in residential housing activity in China. We're starting to see a softening of the pace of
urbanization. They've already moved a few hundred-million people from the rural areas to the city. It's going to be harder
to move the next couple hundred-million people. So, we're starting to see that slow at the margin.
As the government's sort of cracking down on areas of obvious corruption, we've seen some fairly dramatic changes from a
bottom-up level. Companies that we don't necessarily own but we follow them maybe on our wish list are reporting in
areas such as spirits sales down 70% in China. As the government has tried to sort of crack down on corrupt dining,
entertaining and things of that nature.
So things are changing at the margin in China. And the one other thing that we see having happened is that theoretically,
the way which you would have brought these imbalances -- these monetary imbalances -- back into balance -- would be to
have a higher exchange rate in China in order to make them a little less competitive and to bring their savings and
investment into equilibrium to eliminate the trade surplus. In the U.S., it would've been to have higher real interest rates to
attract savings and dissuade excessive investment relative to that savings.
But we're at a moment, at a financial point in time, a little like that moment in Jack Nicholson's movie, "A Few Good
Men." Where he said, "You want to know the truth? You can't handle the truth." China can't handle a market-clearing
exchange rate. In fact, they've already experienced a fairly material increase in their real effective exchange rate over the last
five years, with higher labor prices and a modest appreciation of their currency versus the dollar.
They then started to get exposed competitively when Japan, Indonesia and India weakened their currencies. This year,
rather than seeing a strengthening in Chinese currency, we're actually seeing a weakening in Chinese currency. Not a huge
move, but a move away from equilibrium. That tells me that the Chinese are starting to feel a pinch from the point of view
of profit-growth at this point in time in their industrial complex.
The Chinese banks -- rather like the U.S. banks in 2007 -- now trade at a discount to book value. Now back in 2007, it
looked like it may have represented a value opportunity. Rather, it was the market telling you that the assets weren't good.
Now if you've had a generation of surplus savings by virtue of an undervalued exchange rate, symmetrically, you've also had
a generation of surplus investment or malinvestment.
So we believe that at the margin, the loan books in the Chinese banks have to deteriorate fairly substantially. The
adjustment in China will be very different from the adjustment we saw in America, because it won't be through a freemarket process.
The Chinese government itself is the major shareholder of most of the banks, and will be intimately involved in moving bad
loans off balance sheets and to specially, newly-created asset-management entities. It will be intimately involved in the
recapitalization of banks, in ways that may be unconventional. They're already trying to issue preferred stocks, but
preferred stocks that can't be converted into equity. Which is kind of an unusual instrument.
Now, as China went through this period of surplus investment -- this period of almost fake competiveness because of their
exchange rate -- the flip side of that was that U.S. ran a structural trade deficit, which was deflationary for the U.S.. But
because policymakers think locally and not globally, they tried to solve for that deflationary impulse -- that local-output gap
-- by having a very easy monetary and fiscal policy.
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As a consequence, what has happened -- as you can see in this chart -- is that the stock of U.S. government debt has gone
up dramatically. Not just relative to GDP, but even more exponentially, relative to our gross national savings. You see, as
we ran current-account deficits that depressed our gross national savings relative to our investment at the same time that
the stock of government debt was going up, to cushion the deflationary impact. So the ratio of government debt to gross
national savings in the U.S. economy has gone from around 2-times to around 6- to 7-times. Think of this like a macro
debt-to-EBITDA number.
Now countries like Spain and Greece that have had a blow-out in their government debt-roll to gross national savings -they couldn't print their own money. They saw credit spreads widen dramatically.
But the response in the U.S. been the opposite. which is, "We can print our own money, and we will print our own money."
and that has repressed real interest rates.
Low real interest rates have provided the illusion that household-debt-service ratios are now below average, even though
the stock of debt is above average. They've brought the fiscal deficit down to levels that look more sustainable. But the
reality is, just like China can't handle a market-clearing exchange rate, the U.S. can't handle a 4% or 5% nominal rate of
interest, today.
We're in the sixth year of an economic recovery, and we're still in a program of quantitative easing. Let alone having
positive real-interest rates. This is not a healthy financial architecture.
As a result of sustained financial repression in the U.S., the Fed has been trying to force a reallocation of portfolios. The
linkages between easy-money and economic growth are actually somewhat tenuous. But the Fed has perhaps been a little
bit more successful in trying to force a reallocation of peoples' portfolios.
We've seen over that period real interest rates go from positive -- over the last decade -- 3% or 4% back in 2000, down to
negative, most recently.
We've seen credit spreads go from 1,000 over just a couple of years ago in the high-yield space, to 350 over. And we'll have
the high-yield team and the income-builder teams speak later on today about how they're dealing with that market
landscape.
But in equities, as well, if we look at the last century of valuations -- we've seen P/E ratios on long-term earnings go from
below-average levels in the crisis in the mid-1990s to above-average levels, again. Certainly not at the bubble levels we saw
in 2000.
But if you were to draw a line from the current levels at around 25-times and take it all the way back to 1900, there are very
few points in time when market valuations have been higher on trend earnings. So we have reasonably high P/E multiples
on high levels of earnings and high margins.
The question is, if this is the landscape we're in, where confidence feels like it's improving, but underneath the surface there
are material imbalances in the global financial architecture -- whilst it feels like we're going into normal recovery in the U.S.,
and it feels like China's managing a slow-down to 7% to 8% growth, and that's kind of the consensus outlook -- we have to
be open-minded to the possibility that the future could be much more challenging than we think today.
I've been thinking about, "What is the source of latent demand in the U.S. economy?" Household savings are at new
generational lows. And the government is still in a fiscal-tightening mode. So should we really be expecting demand to
take off in this economy?
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We're only just starting the process of normalizing monetary policy. I think the best we can hope for is that the removal of
policy uncertainty improves confidence overall and investment activity.
But if we get a meaningful step up in investment, while we're pursuing policies that assuage savings, is that not going to fuel
the trade imbalance that got us here in the first place? Same problem with China. If they let their currency weaken to
shield the forces of a slow-down, does that not fuel the imbalance that got us here in the first place?
If feels like we're at a bit of a tipping point, in terms of the imbalances.
In this environment, our approach has remained unchanged. Which is that if the first goal of investing is to try to avoid the
permanent impairment of capital -- and the second is to produce a satisfactory real return on capital -- your approach to
investing shouldn't be to make sure that you look like the market at all periods of time.
In fact, not looking like the market is what kept us out of Japan in the late '80s. It kept us out of tech in the late '90s. It
kept us out of the banks. It kept us out of the BRICS and out of social media.
What we do is that we leave cash when we can find money-good opportunities one at a time. When we can find a good
business that embodies a margin of safety in price.
As you could expect, as market valuations have gone up here, at the margin, as a second-order consequence of a disciplined
approach, we've been selling more securities than we've found new opportunities. So at the margin, our cash levels have
drifted up the last couple of years.
Our clients thought we were kind of crazy putting money to work in 2009 when markets were in distress. I recall many
conversations with clients saying, "Look. You're a global, flexible fund. It's an obviously deflationary environment. GM's
defaulting. Shouldn't you have much more cash in this uncertain environment?"
Our response in 2009 was, "Actually, no.” We want to generate a satisfactory real return over time. We know in order to
do that we need to be buyers of business. We only like to buy business when we can get it at the right price. So this is the
time where we should be buying businesses.
The flip side is occurring today. As I go around the country, the comment I often get back is, "Isn't it obvious that we're
into an economic recovery?" “Isn't it obvious that interest rates are zero?” “You should be putting all your money into
equities because you can then take advantage of that economic recovery.
Well, if you go back to our starting point, which is the acknowledgement that the future is uncertain, it's not obvious. In
our belief, you should only leave cash where you find money-good opportunities to deploy that cash. You can see our cash
levels have drifted up pretty much in line with the valuation level of markets.
But don't get us wrong. The goal is not to have a structural allocation to a negative real-return asset -- cash. That cash is
merely deferred purchasing power. We intend to put that money to work when your clients would feel least comfortable
putting that money to work. That's the future service that we would look to do for you with that cash.
The second thing that's come up in the discussion today on numerous occasions is the topic of gold. Gold hurt our relative
returns last year. But it's an important part of an all-weather portfolio structure.
I think this chart hopefully summarizes well what role gold plays in a long-term portfolio. Because of the distortion of
nominal monetary creation, the price of gold has seemed to go all over the map the last couple of generations, as to
equities.
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What we've tried to do is to strip out the distortion of money-printing, and recalibrate the value of equities and gold relative
to world nominal GDP-per-capita. What you can see, when you look at the MSCI World relative to world-nominal GDPper-capita, and you look at that compared to the value of gold relative to world-nominal GDP-per-capita is -- since the
breakdown of the Bretton-Woods agreement in the early 1970s, gold has had its peak valuations when equity has had its
trough valuations. Gold has had its trough valuations when equities had its peak valuations. Why is this the case?
Well, ultimately, the key utility of gold as a monetary reserve is its near-uselessness as a commodity. Because gold is
relatively chemically inert, it doesn't get used the way that iron-ore or copper would get used in a Chinese construction
boom. It doesn't get used the way oil is used as a transportation fuel. So gold demand is less sensitive to the business cycle
than other commodities.
Gold doesn't rot or rust or waste. Gold is, on a periodic table, I believe as close as you'll get to nature's zero-beta
perpetuity. We don't like the word "beta" at First Eagle, but I talk about it in the context of sensitivity to the business cycle.
It's a commodity that has low sensitivity to the business cycle.
Its density also means it's very cheap to store. So if you have an element that has low sensitivity to the business cycle and
it's cheap to store, the opportunity costs of storing that is much lower than storing iron ore or copper. If you were going to
store iron ore or copper, you'd want a real return, similar to owning equities because the price behavior is also sensitive to
the business cycle. But those commodities don't give you that kind of real return, because it makes no sense to store them.
The only thing that it makes sense to store as a monetary reserve is something that's less sensitive to the business cycle, that
lasts a long time, and is cheap to store by virtue of its density and that's gold. So we think it makes sense that gold be used
as a monetary reserve, as a potential hedge asset. While we've had our money untethered to gold, its price-behavior has
borne that out. It's had its peaks and troughs inversely to the price of risk.
That is why we own gold as a secular pillar of our portfolio. Its price over the very long-term has inflated with nominal
activity levels, but in somewhat inverse measure to risk assets. So if you're trying to construct a portfolio for the long-term,
it's an important part of that portfolio.
You can see when gold's valuation was high a couple of years ago in 2011, when gold started to become 14% or 15% of our
portfolios, we were selling it at the margin. We did not want the portfolios to become a directional bet on gold.
On the flip side at the end of last year, when gold miners and gold bullion became very cheap -- after having sold off in a
market that was risk-on -- we were buying gold both through the bullion and through the miners to try to make sure that
we had a reasonably material potential hedge in the portfolio.
But the vast majority of our portfolio is expressed in a different form of scarcity. You see if monetary abundance is the
root cause of the imbalances in the world, in the investment cycle and in terms of the second order of consequences of that
-- such as the pollution in China and the like -- then the solution must be scarcity.
We talked about gold. Its intrinsic scarcity and it is resilience. But our key goal is to try to find scarcity and resilience in the
world of businesses. When we talk about scarcity in the world of business, we're talking about business models that are
difficult to replicate either because they own assets that you can't replicate such as CBD real estate or timberlands or
quarries or precious-metal mines, or because they own something even more difficult to replicate such as a dominant
market position. Companies that have scale advantages, companies that have a degree of customer-captivity and companies
that have owner-oriented management teams that focus on preserving that competitive advantage, form the mainstay of our
portfolio.
I provide an example of that here with Oracle. Not because I'm predicting that the stock price is going to go up a lot. It's
simply our largest position. But our largest position is less than 2% of the portfolio.
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Again, if you realize that the crystal ball is foggy-at-best, just like we don't know exactly what's going to happen in the
economy, we don't know which one of our stocks is going to go the most over any given period. The analogy I'll give you is
sort of like when you put popcorn in the microwave and you turn the temperature up. You don't know which piece of
popcorn is going to pop, but you know if you’re patient that all of the popcorn is going to turn out okay.
We view our portfolio the same way, basically. We're buying into business one at a time and we look to do so with a
margin of safety in price, but we're also looking for a particular type of business, a business in particular that involves a
degree of scarcity.
I mention Oracle here, because Oracle controls about 40% of the relational database market. They have a pretty
unassailable scale position in the database market. It's seen as a mundane business, by comparison to the social-media
world. But a good database sits at the core of pretty much every Cloud application and every modern ERP system. Oracle
is the key provider of that database technology.
Now the one thing that's important other than their scale advantage in providing this is because they can outspend their
competitors in R&D, and they have density in their salesforce that other people can't match. What most people don't
realize is that most of their profits come not from the sale of a new database license, but from maintenance revenues.
When they sell a new license, they sign you up for multi-year maintenance contracts, where you're typically spending 20%,
21%, 22% of the purchase price of the database in an annual maintenance fee. They then index that maintenance fee to
inflation. So the vast majority of their EBIT or operating profit is essentially an index royalty to the install base of
databases. It's not based upon new sales of databases.
Oracle's stock price goes up and down like a yoyo, with the rest of the tech universe. But its business is much, much more
stable. It's pretty impressive, when you think about it. But it reflects the fact that a lot of their portfolio is based on
maintenance revenues.
Buy into good businesses when their stock price doesn't reflect that goodness.
The second element of scarcity in the case of Oracle is not just in the difficulty of replicating their business, but because
they've got a strong market position, they're generating free cash flow. They're able to reduce their share count over time.
This is very different from owning government debt. In the world of government debt, you might be getting a 2% yield if
you go out 7 or 8 years, but the government's expanding money supply by 5% or 6% a year. So it's rather like a company
that gives you a 2% dividend yield and expands its stock shares outstanding by 5%. You know it's a raw deal.
In the case of a business like Oracle or some of our other larger holdings, you might be getting a dividend yield, but in
addition to that, the supply is not growing; it's shrinking.
Let me just reiterate, I'm not pitching an individual stock. I don't know what Oracle's stock price is going to do over the
next 12 or 18 months. But I'm giving you an example of what we look for when we move out of cash.
So let me sum up on the philosophy and process here just to sort of tie it all together for you.
The goal is to preserve purchasing power of capital, over time. We know that in order to do that, we need to identify scarce
enterprise. But as importantly, we need to purchase that only when we see an appropriate margin of safety in price.
When we can't find sufficient margin of safety in price, we're willing to hold cash. And you've seen our cash build into a
more expensive market. The benefit of that is that we have resilience in the next wave of distress and the ability to
capitalize on that, when your clients would feel least comfortable doing that.
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At a time when implied volatility is low and economic confidence is returning, it's often hard for people to imagine what
would possibly create the next wave of distress. Especially when monetary policy is still easy and it looks like there are
cylinders of the economy that could improve, such as residential housing. And we have a bonanza with things like shale oil.
All that looks great.
But I started this presentation thinking globally -- not locally. And just like China was part of the solution in 2009, China
might be part of the problem today.
I think when you look at markets, don't just look at your back yard. Think about the issues that could evolve globally.
When you think you feel grateful for the easy monetary policy, just reflect on the fact that easy money may be the source of
problems; not the solution to problems.
Finally, we're willing to hold some gold as a potential hedge against the unknown.
Before I wind up, I just want to comment on one other element, and that is, as important as it is to have a patient, longterm temperament in investing, and have the humility to demand a margin of safety in each investment, it's also important
to know that no one person has a monopoly on the truth.
One of the things that's been the most-rewarding for me, being part of First Eagle, is to work with an exceptionally talented
and deep bench of individuals.
Firstly, I'm mentored by a group of very experienced players in the financial market. You heard from John Arnhold this
morning; our chairman. Later on today, you'll hear from our senior advisors, Jean-Marie Eveillard and Bruce Greenwald,
from whom I've learned an enormous amount over the years.
Today in the audience, you'll get the opportunity to meet with Kimball Brooker, Rob Hordon, Giorgio Caputo, Abhay
Deshpande and various members of the portfolio management team that are here today.
I'm truly surrounded by other portfolio managers who look at the world through a similar mindset of, as John said,
common sense investing. Looking for a margin of safety.
We seek advice from each other on a state of the world, on the price of individual securities and businesses. We're
surrounded by a team of senior analysts who are very experienced. Our most-seasoned senior analyst -- Elizabeth Tobin -was hired by Jean-Marie back in 1986. We have a very dedicated trading team. Doug DiPasquale, with over 20 years of
experience, heads that trading team. Debbie Lusman, who's in charge of our research operations, had a background in
equity-research before joining us, and allows the portfolio management team to really focus on investing, while she takes
care of the relationship with the Street, our proxy-voting and all those matters. And dedicated administrative assistants -Simone and Natalia.
We have a team. We have a defined philosophy. We have a perspective that's global -- not local. I think our competitive
advantage is in our temperament and not our crystal ball. That's what I'd like you to take away from today. 
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The opinions expressed are not necessarily those of the firm. These materials are provided for informational purpose only.
These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Any
statistic contained herein have been obtained from sources believed to be reliable, but the accuracy of this information cannot
be guaranteed. The views expressed herein may change at any time subsequent to the date of issue hereof. The information
provided is not to be construed as a recommendation or an offer to buy or sell or the solicitation of an offer to buy or sell any
fund or security.
There are risks associated with investing in funds that invest in securities of foreign countries, such as erratic market
conditions, economic and political instability and fluctuations in currency exchange rates.
Investment in gold and gold related investments present certain risks, and returns on gold related investments have
traditionally been more volatile than investments in broader equity or debt markets. The principal risk of investing in value
stocks is that the price of the security may not approach its anticipated value or may decline in value.
Investors should consider the investment objectives, risks, charges, and expenses of a fund carefully before
investing. The prospectus and summary prospectus contain this and other information about the fund, and may be
obtained by contacting your financial adviser, visiting our website at www.feim.com or calling us at 800.334.2143.
Please read the prospectus carefully before investing.
Investments are not FDIC insured or bank guaranteed, and may lose value.
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