Matthew McLennan on the Recent Market Turmoil

Commentary
As of August 25, 2015

After a period of very low volatility and gradually rising risk-asset prices, the past week witnessed a somewhat dramatic rout in
equity markets. We believe this was not a crisis, but a genuine correction. The stock market rout around the world this past week
has largely been attributed to weakness in Chinese equities. We have been speaking about the imbalances in China for some time,
and a correction of speculative excesses in that market is a healthy development. We feel that the Chinese have had their fingers in
the dike in a few places, be it their attempts to prop up the stock market, their willingness to let their currency start to depreciate
after a long period of appreciation, or their recent decisions to cut interest rates and inject liquidity into the economy.
As in the West, authorities in China are discovering that debt is far easier to create than it is to moderate or eliminate. We expect
the short-term to medium-term road ahead for China to continue to be complicated. Investment levels have not yet fallen to global
norms for high-growth economies, local government debts have not been meaningfully restructured, the impact of factory automation on labor markets is in its early days, social problems with public health and pollution need to be addressed, and the future
geopolitical strategy remains unclear. The Xi administration has been committed to genuine reforms, but these are unpopular with
entrenched interest groups, and the move to reform will be politically complicated as asset markets adjust to the last generations
epic credit boom.
However, the stock market rout in the developed world is about more than China. Yes, the price of risk is a global commodity and
increased risk aversion in China did play a role in the downturn, but we have our own issues to digest. We have spoken repeatedly
about the fact that the West currently has more debt (household, corporate and sovereign) than before the last crisis. Plunging longterm interest rates and commodity prices signal that in a world with too much debt, nominal growth is likely to be low. Furthermore, with margins generally very high and the price of labor starting to rise, the combined specter of sluggish top-line growth and
margin moderation doesnt portend well for profits.
Getting rid of excess debt is tricky for Western economies, too. Easy fiscal policy and quantitative easing enabled some element of
private-sector restructuring and deleveraging, but it was more than offset by growth in government debt. If we stopped issuing new
debt and didnt restructure any existing debt, the rate of debt adjustment would be limited to the rate of productivity growth in the
economy. This would imply a generationally long adjustment. And, of course, we havent stopped issuing debt. As a result, weve
resorted to repressing interest rates relative to money supply growth.
In order to deleverage, economies that are overweight manufacturing (and therefore subject to the pressures of automation) and
economies that culturally dont like to restructure debt are generally forced to try to depreciate their currencies and run current
account surpluses. Unfortunately, the resultant dollar strength means that the U.S. will generally run a larger current-account
deficit, which will make deleveraging more difficult. The last few generations experienced mid- to high-single-digit nominal
growth during a long-term global leveraging cycle. If we have to pay the piper and deleverage, the next generation may experience
low-single-digit to mid-single-digit nominal growth. As the Austrian economist Ludwig von Mises reminded us in his classic book
Human Action, real wealth cannot be created by little scraps of paper. The sovereign bond and commodity markets may already
have absorbed this new, more challenging reality, but arguably the equity market and credit spreads have not.
Investing is all about spotting the gap between price and prospects. If nominal growth prospects are sluggish, how can we feel
comfortable with equity prices that are high by historical standards? We have been speaking for some time about the complacency
embodied in the prices of risk assets. The U.S. equity market was trading at over 20x trailing peak earnings, but historical norms
are in the 12-18x range.1 Investors had generally bid up price/earnings ratios as earnings were deemed attractive relative to repressed
interest rates. While this was true, perhaps investors ignored the fact that interest rates are low because theres too much debt, and at
1. Based on the S&P 500 Index. Sources: Shiller database and Bloomberg.
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Matthew McLennan on the Recent Market Turmoil

Commentary

As of August 25, 2015

some point in the future, the correction of that excessive debt may put future earnings power at risk. We also have talked at length
about the narrowing of the market, which has historically been a key negative technical. We talked about the fact that what had
momentum lacked value and what had value lacked momentum. We talked about why gold still makes sense to us as a potential
hedge. We believe this correction has not brought the market to bargain levels: We are simply back to the high end of the historical
orbit (18x trailing peak earnings, with an earnings peak that is elevated due to high margins).
One other point of interest is that gold, the euro and the yen appreciated during this downturnthe dollar was not the safe haven
people may have expected it to be. Perhaps this reflects the sense that the dollars valuation had become stretched due to expectations that the U.S. alone would have a strong economy and higher interest rates. Whether or not the Fed raises rates has now come
into question. The fall in oil and other commodity prices has arguably helped the Japanese and European economies at least as
much as the United States.
Gold rose from its recent levels during the rout. Gold mining stocks generally did not keep pace, but weve always said that these
shares have both an equity component and a potential hedging component. The equity factor tends to dominate in the short term
and the potential hedging in the longer term.

Our Portfolios
We were a net buyer in the heat of the past few days. We saw some decent opportunities in some of the more extreme trading that
occurred, and we focused our buying on what we believe are resilient companies with strong market positions and disciplined
management teams. But there has not been enough distress for us to buy more mundane businesses that would be more vulnerable
to a receding economic tide.
In the energy sector, weve clearly seen a pullback in the value of some upstream producers, but weve also seen the forward curve for
energy prices continue to decline. We have continued to add to some of our positions in specialty services and energy-related industrials, which have been hit hard and which we think have a more attractive long-term business opportunity than the pure upstream
energy producers.
During the past year, weve been net sellers in Japan. As we look across our portfolio of Japanese equities, prices have come back to
levels where we feel more comfortable at this point. If we see further declines from this level, we could become a net buyer of selective equities in Japan.
Some of the higher-quality consumer names that have exposure to emerging markets have been hit hard, and weve been able to
access them. Risk aversion has risen in the emerging markets, and not just in China. The Brazilian currency has lost half its value,2
and the market there has been weak. In the emerging markets, when you look for gaps between prices and prospects, you have to
acknowledge that politics play a big role on the prospect side of the ledger. Politics have become more complicated in Brazil, Turkey,
South Africa and Russia. Wed also be more enthusiastic about emerging markets if wed seen a meaningful adjustment in their
banks non-performing loan provisioning and related capital raising, but perhaps that all lies ahead.
Over the past month, our portfolios have declined in absolute terms by just over five percent. While were not happy with that
outcome, our only solace is that the broader equity markets are down by around nine percent.3 Today, our portfolio feels more
comfortably valued than it has for quite some time. Our crystal ball wont tell us what happens next, but you can expect us to buy
on weakness and trim on strength. Volatility is our friend, not our enemy, and if this market rout turns into a deeper crisis, we have
plenty of liquidity to take advantage of it.

2. Source: Bloomberg.
3. Based on the MSCI World Index. Source: Bloomberg.
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Matthew McLennan on the Recent Market Turmoil

Commentary

As of August 25, 2015

Average Annual Returns as of 6/30/2015 (%)

First Eagle Global | Class A | SGENX

First Eagle Overseas | Class A | SGOVX
First Eagle U.S. Value | Class A | FEVAX
First Eagle Gold | Class A | SGGDX

First Eagle Global Income Builder | Class A |

FEBAX**

YTD

1 Year

5 Years

10 Years

1.77

-1.45

10.13

8.68

-3.31

-6.38

9.01

8.13

6.11

-1.92

8.47

7.97

w sales charge

0.79

-6.81

7.36

7.42

w/o sales charge

-2.32

-1.50

10.67

7.21

w sales charge

-7.21

-6.43

9.55

6.65

w/o sales charge

w sales charge
w/o sales charge

w/o sales charge

-3.04

-24.81

-12.35

3.04

-7.91

-28.56

-13.25

2.51

YTD

1 Year

3 Years

Since Inception
(05/01/12)

w/o sales charge

2.99

-4.05

7.85

7.10

w sales charge

-2.12

-8.81

6.02

5.36

w sales charge

Expense Ratio*

1.11
1.16
1.17
1.32

Expense Ratio*

1.23

The performance data quoted herein represents past performance and does not guarantee future results. Market volatility can dramatically
impact the funds short-term performance. Current performance may be lower or higher than figures shown. The investment return and principal value will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost. Past performance data
through the most recent month end is available at www.feim.com or by calling 800.334.2143. The average annual returns for Class A Shares
with sales charge of First Eagle Global Fund, First Eagle Overseas Fund, First Eagle U.S. Value Fund, First Eagle Gold Fund, and First Eagle
Global Income Builder Fund give effect to the deduction of the maximum sales charge of 5.00%.
*The annual expense ratio is based on expenses incurred by the fund, as stated in the most recent prospectus.
**Had fees not been waived and/or expenses reimbursed in the past, returns would have been lower.
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.
All investments involve the risk of loss.
The commentary represents the opinions of Matthew McLennan, Head of Global Value Team as of August 25, 2015 and is subject to change based on market and
other conditions. The opinions expressed are not necessarily those of the entire 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 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 or sell any fund or security.
Past performance does not guarantee future results.
The book mentioned in this commentary is not endorsed by First Eagle Investment Management. It is for informational purposes only.

Investors should consider investment objectives, risks, charges and expenses carefully before investing. The prospectus and summary
prospectus contain this and other information about the Funds 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 our prospectus carefully before investing. Investments are not FDIC insured
or bank guaranteed, and may lose value.

First Eagle Funds are offered by FEF Distributors, LLC. www.feim.com

First Eagle Investment Management, LLC 1345 Avenue of the Americas, New York, NY 10105-0048