Eveillard ignores the bulls
Respected fund manager talks about his career, the Dow, and his caution
NEW YORK (CNNfn) - Forgive Jean-Marie Eveillard for his caution in a bull market.
Sitting on the sidelines as U.S. stocks soar has been painful, he admits with a Gallic shrug, but a leopard cannot change its spots.
"We've been on this side of caution for 20 years," Eveillard says. "The money management business is psychologically painful, even when you're relatively successful."
But the strategy seems to have paid off for Eveillard, 57, a veteran fund manager who heads the well-regarded if somewhat battered SoGen International, Overseas and Gold funds.
While the funds' returns have lagged in the last three years, Eveillard is ranked 25 in Barron's top 100 fund managers of 1997 for the Overseas Fund. Morningstar Inc., a Chicago mutual-fund tracker, gives the International Fund four out of five stars.
"When you're strictly committed to risk management and lowering volatility, you usually lag in an outperforming bull market, but you do better in down markets," says Mike Breen, an international fund analyst at Morningstar. "Eveillard has done an excellent job, and all you can ask from a fund manager is that he has a strategy and sticks with it."
In a recent interview in Eveillard's cluttered but airy office overlooking Sixth Avenue, he spoke about a profession that has consumed him since he graduated from business school in Paris in the late 1950s.
"What I like about the business is the intellectual exercise of it, and trying to analyze which securities are undervalued," he says.
Eveillard is a lanky man with caterpillar eyebrows that arch up when he talks, giving him a surprised look. After 20 years in the United States, he still speaks with a thick accent, in a voice made gravelly by Camel cigarettes.
The Dow Jones industrial average is dancing at record highs as Eveillard considers a question. How high will it go? Eveillard is not so optimistic.
"I don't see any room for growth," he says. His Gold Fund holds 33 percent U.S. assets, while the International Fund has 26 percent U.S. stocks and the Overseas Fund includes 7 percent in U.S. bonds.
Meanwhile, Eveillard says the returns of his funds have been "pedestrian" in the last three years.
The International fund, with $4 billion in assets, earned 15.24 percent in 1995; 13.64 percent in 1996; and 8.54 percent in 1997, according to Lipper Analytical Services. The Overseas Fund, with $1 billion in assets, earned 11.79 percent in 1995; 14.53 percent in 1996; and 3.02 percent last year.
The Gold Fund, with $33 million in assets, was up 1.28 percent in 1995; gained .89 percent the following year and lost 29.79 percent in 1997.
But returns over the long run have been brighter. (see chart) And the International Fund, the oldest of the three, had annualized returns of 12.21 percent over 10 years and 14.2 percent over 15 years.
Morningstar's Breen says many value managers have had a tough time in the bull market and have been forced to hold more cash as they hunt for bargains. But both the International and Overseas funds are ranked one or two for risk in their categories and perform in the middle, which Breen says is impressive.
"It's a testament to a good fund manager to stick to a strategy even when he's at odds with the market," he says.
Even Eveillard's beaten-down Gold Fund has something small to be proud about, Breen says. Last year, gold funds lost an average of 41.7 percent because gold prices dropped 22 percent, making Eveillard's fund the second-best performer of the year.
The SoGen funds aren't for short-term market timers, however. The funds hold stocks an average of five years. Eveillard also relies on complex strategies to minimize his archenemy -- risk.
For example, more than half the gold fund's holdings are indirect plays. One stock, Franco-Nevada Mining, a company that trades on the Toronto Stock Exchange, buys gold mines and leases them out.
Or, he'll buy preferred shares that pay dividends -- a long-term bet that gold prices will rebound to $400 an ounce. He bought the B, C, and D series of Freeport McMoRan Copper & Gold Inc., a New Orleans-based mining company.
SoGen Funds bought the shares before Freeport felt the sting from the BreX gold scandal. Eveillard says the price of the preferred shares depends on the price of gold, rather than the company's performance.
Eveillard has also bought some unusual Japanese stocks -- complicated asset plays that shows he does his homework, Breen says.
While beleaguered Japanese investors are staying away, Eveillard purchased cheap shares in several property and casualty insurers, such as Tokyo Marine and Fire. The insurers are strong businesses at bargain-basement stock prices that hold their own portfolios.
"He knows the companies inside and out," Breen says. "He rarely makes a mistake."
Eveillard says the paradox of a good market is people think it will last forever. "The higher the market goes, the less risk people see."
The Japanese used to think like that, before Tokyo's market dropped 60 percent over eight years. Now they keep their savings in post office accounts and are afraid to buy any stocks.
"The Japanese don't take advantage of low prices," Eveillard says.
Of course, Eveillard remembers when he pulled out of Japan's booming market in mid 1988. He sensed the market was overvalued and would correct itself -- and missed out on 30 percent growth.
Then again, he got out of Japan when the Nikkei was at 30,000. The Nikkei climbed as high as 39,000, but then plummeted to 14,000 in 1989, suggesting he came out ahead in the long run. He shrugs.
SoGen Funds don't pay too much attention to market psychology, he says.
"Short-term, the stock market is a voting machine where an investor is at the mercy of market psychology, at the mercy of the perceptions of investors," Eveillard says. "In the long term, the voting machine becomes a weighing machine that weighs realities as opposed to perceptions."
-- Story and photos by staff writer Martine Costello