First Eagle Investments Identifies Untapped Value in Japanese Equities

The investment manager, based on a three-decade track record of investing in Japan, seeks high quality businesses with persistent earnings power trading at a discount to intrinsic value.

Hong Kong/Singapore/Japan, 23 October 2023 — First Eagle Investments (“First Eagle”), an independent, privately owned investment management firm headquartered in New York with approximately $128¹ billion in assets under management, said it continues to find opportunity in Japanese equities even after their recent run of success. Drawing upon approximately three decades² of investing in Japan, First Eagle examines why the Japanese economy may finally be on a new horizon of sustained recovery and how new directives from the Tokyo Stock Exchange (TSE) may provide durable support for Japanese equities in a recently published paper.

Following a prolonged period of sluggish growth, incessant deflation and lagging investment returns, Japanese stocks have delivered an impressive 24% year to date return through September on a local currency basis.³ This has captured the attention of global investors, resulting in ¥6 trillion (US$42 billion) of foreign net inflows into Japanese equities during the first half of 2023, the strongest in more than 20 years.⁴

While Japanese equities are not as deeply discounted relative to the lost decades, First Eagle’s Global Value Team believes valuations remain attractive relative to US stocks despite their recent standout performance and continues to find high-quality businesses with persistent earnings power that trade at a discount to “intrinsic value.”⁵

Applying the Global Value Team’s deep knowledge of investing in Japanese stocks reveals structural changes that support long-term investment opportunities. Secular improvements in corporate governance—such as directives from the TSE’s Corporate Governance Code that push Japanese companies to pursue sustainable growth strategies and prioritize improving shareholder returns—may bolster business fundamentals even as cyclical tailwinds wane.

“Japanese equities are attractively valued and offer a higher equity risk premium due to Japan's lower interest rates,” said Matt Lamphier, Director of Research on the Global Value Team. “Additionally, many companies have responded to the TSE’s directives by reviewing and restructuring their businesses for the better—selling non-core businesses and/or buying-in profitable listed-subsidiaries, as warranted.”

While First Eagle is still constructive on Japan, the Global Value Team remains cognizant of risks and challenges. Fiscal and monetary policies are still a long way from neutral, and policy normalization could affect the market negatively. Japan's aging and declining population presents challenges to sustained growth, but First Eagle's focus on businesses with scarce, durable assets that provide operational advantages and persistent earnings power may support long-term opportunities.

“Building a portfolio from the bottom-up that is comprised of companies with strong businesses, hard to replicate assets, and trading at discounts to intrinsic value may provide resilience across market cycles,” said Al Barr, portfolio manager and senior research analyst.

1. The total AUM represents the combined AUM of (i) First Eagle Investment Management, LLC, (ii) its subsidiary investment advisers, First Eagle Separate Account Management, LLC, First Eagle Alternative Credit (“FEAC”) and Napier Park Global Capital (“Napier Park”), and (iii) Regatta Loan Management LLC, an advisory affiliate of Napier Park. The total AUM. includes $0.9 billion of committed and other non-fee-paying capital from FEAC and $1.0 billion of committed and other non-fee-paying capital from Napier Park.
2. Prior to January 1, 2000, the First Eagle Global Value strategy was managed by a prior portfolio manager while he served at a firm different from First Eagle Investment Management, LLC.
3. Source: FactSet; data as of September 30, 2023.
4. Source: Bloomberg; data as of June 30, 2023.
5. Intrinsic value is based on First Eagle’s judgment of what a prudent and rational business buyer would pay in cash for all of the company in normal markets.

About First Eagle Investments

First Eagle Investments is an independent, privately owned investment management firm headquartered in New York with approximately $128 billion in assets under management as of September 30, 2023.¹ Dedicated to providing prudent stewardship of client assets, the firm focuses on active, fundamental and benchmark-agnostic investing, with a strong emphasis on downside mitigation. With a heritage dating back to 1864, First Eagle strives to help clients avoid permanent impairment of capital and earn attractive returns through widely varied economic cycles. The firm’s investment capabilities include equity, fixed income, alternative credit and multi-asset strategies. For more information, please visit www.firsteagle.com.

The opinions expressed are not necessarily those of the firm and are subject to change based on market and other conditions. These materials are provided for informational purposes only. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Any statistics 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, hold or sell any security. The information in this piece is not intended to provide and should not be relied on for accounting, legal, and tax advice.

Risk Disclosures: All investments involve the risk of loss of principal.

There are risks associated with investing in securities of foreign countries, such as erratic market conditions, economic and political instability and fluctuations in currency exchange rates.

A 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. “Value” investments, as a category, or entire industries or sectors associated with such investments, may lose favor with investors as compared to those that are more “growth” oriented.

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