First Eagle Global Fund Q2 2025 Commentary

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Market Overview

While “Liberation Day” was greeted as anything but by markets, a delay in the most punitive tariffs sparked renewed interest in risk assets during what was a volatile second quarter.

The “sell America” trade that emerged in mid-February reached a crescendo with Trump’s April 2 announcement of (not actually) “reciprocal” tariffs on trading partners the world over, and within a few days the S&P 500 Index had lost more than 15%. Though trade issues remain unresolved, easing tensions were enough to draw investors back, and growth names helped drive the S&P 500 to a 10.9% quarterly return and a new record high. While not immune from the April selloff, non-US markets continued to surge, and the MSCI EAFE Index returned 11.8% for the second quarter. Year to date, the MSCI EAFE has outperformed the S&P 500 by more than 1,300 basis points.1

Are US Markets Equipoised for Success?

With valuations and spreads having returned to pre-Liberation Day levels, risk perception in the equity and bond markets appears to reflect an economy in equilibrium—or what John Williams, president of the New York Fed, has described as “equipoise.”2 For a central banker, this state suggests a balanced labor market and target-level inflation. And while there is evidence of equipoise in the current environment— job vacancies are in line with unemployment levels, for example, and inflation metrics have fallen markedly—investing by this narrative disregards the high levels of risk that we believe persist, especially the risk of renewed inflation pressures.

In our view, the labor market is the epicenter of this risk due to a supply shock we see looming in the not-too-distant future. The natural increase in the US population—that is, the difference between births and deaths—has been in decline for much of the twenty-first century as Baby Boomers age and Americans have fewer children, though this has been more than partially offset by net immigration. Assuming the Trump administration maintains its aggressive approach to immigration—monthly Immigration and Customs Enforcement (ICE) detainments are running around 300% higher than pre-Trump levels, and a sharp decline in arrests at the border suggest fewer crossing attempts—this labor source is likely to shrink dramatically.3 With the recently signed tax and spending bill allocating $100 billion to ICE through 2029—its budget for fiscal 2025 was $10 billion—this seems like a fairly safe assumption.4

And while the labor market may be in balance today, its equilibrium was achieved at levels tighter than have been typical of past cycles. Labor utilization is near historical highs, wage growth is above its long-term average, and the unemployment rate is well below average. Job openings receded sharply over the past three years but have since plateaued well above the pre-pandemic trend and have inflected upward in recent months.5

We’ve noted in previous commentaries that we believe the resilience of the labor market throughout the Fed’s rate-hike cycle was due at least in part to the massive fiscal stimulus of the Covid-19 era. The nominal rebasing of the economy that resulted from the government’s debt spree helped bolster corporate profits in the face of monetary tightening, supporting a moderation in payrolls growth rather than an outright contraction. With financial conditions again accommodative and the accumulation of public debt unrelenting, corporate profits and profit margins have been biased higher, and historical data suggest that job openings are likely to follow suit. Introducing more jobs into a stagnant labor pool is a potential spark for wage inflation.6

Fiscal Tap Opens Globally

You would expect an economy in equipoise to have a primary balance of zero and a total deficit equal to the interest expense on debt, which for the US is currently around 3% of GDP. As a result of loose fiscal settings, however, the US federal deficit stands around 6.5% of GDP, or 3.5% more than would seem necessary. With a baseline cost of $3.0 trillion over the next 10 years, Trump’s tax and spending bill is forecast to widen the deficit still further, to 6.9% of GDP by 2034; were the temporary tax cuts in the bill to be extended or made permanent, as they often are, the cost increases to $3.7 trillion and the deficit to 7.3%.7 In recognition of the increased inflation risk this represents, interest rates have broken out to the upside, with the 30-year Treasury around 5%—a level it hasn’t seen consistently since before the financial crisis.8

The dismal fiscal situation presents the US with a double bind. Doing nothing to address the trajectory of debt will likely increase the risk of inflation and push interest rates still higher. Taking action to curb it, such as generating additional revenue through tariffs, will likely increase the risk of a recession and wider credit spreads. In other words, both inaction and action increase the risk of tighter financial conditions, to the likely detriment of risk assets.

Notably, all of the US tariff drama and its associated rhetoric has prompted a broader rethinking of fiscal spending among policymakers globally. Germany’s new governing coalition spearheaded legislation to permanently exempt defense spending above 1% of GDP from its restrictive constitutional debt brake and created a €500 billion infrastructure fund, allowing the European country with the most fiscal space the flexibility to deploy it.9 NATO countries agreed to raise annual defense spending to 5% of GDP by 2035.10 China has emphasized the need to boost consumption in the face of external threats like the escalating trade war with the US; indeed, Chinese spending growth during the first quarter was sharply higher at both the federal and provincial levels, leading some analysts to increase their expectations for 2025 economic growth.11

Easy fiscal policy as a global phenomenon may help dislodge the notion of US exceptionalism, but it also presents its own set of risks to monetary stability. That said, equity market valuations suggest risk compensation is better in non-US markets than in US markets, including far higher earnings yields.12 Year-to-date relative performance suggests that investors may have begun to take notice.

Shifts in the value of the US dollar compared to other major currencies has been a key factor influencing relative equity performance across cycles, with US equities tending to outperform during periods of dollar strength and non-US stocks leading during periods of dollar weakness.13 The latter dynamic has been intact thus far in 2025 as real interest rate differentials favoring US investment have begun to ease.14 While the duration of the dollar’s current pullback can be measured only in months, there are reasons to believe further weakening is possible. At levels not seen since the mid-1980s, the dollar remains exceptionally strong relative to its trading partners, even after recent weakening in our view, and decisions by foreign investors to trim oversized US exposures in favor of home-grown assets could further weigh on the dollar while boosting their domestic markets.

Resilience Remains in Focus

With Trump’s July 9 deadline for trade deals extended to August 1 and a steady flow of ad hoc sector and country tariffs—copper and Brazil, most recently—trade policy very much remains a moving target. Meanwhile, the combination of a shrinking US labor force and ongoing fiscal largesse threatens to reintroduce wage inflation to markets seemingly detached from risk. And we didn’t even mention the escalations of military conflict in the Middle East and Ukraine or any of the many other sources of geopolitical strife.

With clarity in short supply, we remain committed to investing in a diversified basket of individual assets we believe have the potential to demonstrate resilience across multiple states of the world. In certain portfolios, this includes gold, which has surged to record nominal highs amid the economic, geopolitical and fiscal murk. We believe this rally merely reflects gold’s move toward a more rational valuation relative to assets like Treasuries and equities after a long period of undervaluation, and we continue to value the metal as a potential hedge against a variety of adverse outcomes.

Portfolio Review

Global Fund A Shares (without sales charge*) posted a return of 7.23% in second quarter 2025. All regions contributed to performance; North America and developed Europe were the leading contributors while Japan and developed Asia excluding Japan lagged. Information technology, communication services and consumer staples were the largest contributors among equity sectors, while health care and energy were the only detractors and real estate also lagged. The Global Fund underperformed the MSCI World Index in the period.

Leading contributors in the First Eagle Global Fund this quarter included Oracle Corporation (ORCL), gold bullion, Meta Platforms, Inc. Class A (META), Taiwan Semiconductor Manufacturing Co., Ltd. (TSM) and BAE Systems plc (OTCPK:BAESF)(OTCPK:BAESY).

Oracle, one of the world’s largest independent enterprise software companies, reported strong results during the quarter, largely driven by its cloud operations, which comprise approximately 75% of revenues. Oracle has benefited from the shift to a cloud-first approach by enterprises and an overall increase in industrywide capital expenditures on artificial intelligence. Strategic partnerships with companies including Microsoft and Alphabet broaden Oracle’s reach to address diverse customer needs. Growth in remaining performance obligations suggests continued strong prospective revenues.

The price of gold during the second quarter was bolstered by a weakening dollar, falling interest rates and elevated geopolitical risk, with the pronounced deterioration in trade relations adding fuel to the fire. Meanwhile, central bank demand and inflows into gold exchange-traded funds were additional sources of support.

Meta—the parent company of Facebook, Instagram and WhatsApp, among other social-media platforms—reported strong revenue and earnings growth during the quarter, driven by increases in both ad impressions and price per ad. The company continued to aggressively invest and hire in AI, even as it develops its core advertising businesses. We believe these results demonstrate Meta’s ability to focus on both profitability and efficiency in conjunction with ongoing investments in the core ad business, the metaverse and other AI applications.

Taiwan Semiconductor (TSMC) is the world’s largest semiconductor foundry, a primary manufacturer of advanced chips used in generative artificial intelligence with Nvidia (NVDA), Broadcom (AVGO), Intel (INTC), Advanced Micro Devices (AMD) and Apple (AAPL) among its clients. TSMC reported continued strong sales during the quarter, with an expanded contribution from AI. We believe TSMC has extended its edge over competitors to become the de facto foundry for many customers. The company has made significant efforts in recent years to geographically diversify its manufacturing base, including in the US.

BAE Systems is the largest defense contractor in the UK. We believe the company is well positioned to benefit from prospectively higher defense spending throughout Europe in the face of uncertain military support from the US, a commitment to which was underscored by the recent agreement among NATO members to increase their defense spending. BAE’s long-term government contracts generate recurring revenues that underpin strong backlogs and cyclical resilience.

The leading detractors in the quarter were Becton, Dickinson and Company (BDX), SLB (SLB), Elevance Health, Inc. (ELV), Alibaba Group Holding Ltd. (BABA)(OTCPK:BABAF) and Willis Towers Watson Public Limited Company (WTW).

Becton Dickinson develops and manufactures medical devices, instrument systems and reagents used in a variety of professional and public settings. The company reported lower-than-expected revenue for its most recent quarter because of weakness in its research instrument and diagnostics businesses resulting from lower global research spending and the impact of tariffs. We continue to like Becton Dickinson’s ability to generate cash and its commitment to enhancing shareholder value through stock buybacks and dividends.

SLB is the world’s largest oilfield service company. In addition to commodity price weakness during the quarter, share performance was dampened by concerns that tariffs and trade uncertainty could negatively impact oilfield service providers. While rig counts and drilling activity have declined this year, the majority of the slowdown has been in North America. In contrast, OPEC+ has increased production, which should benefit SLB given that it derives approximately 80% of its revenue from international and offshore markets.

Shares of Elevance Health, the health insurer and healthcare-services provider formerly known as Anthem, traded lower on concerns that the budget reconciliation bill working its way through Congress would negatively impact Medicaid spending, reducing Elevance volumes and margins. (The bill signed after the quarter’s end appears likely to cut Medicaid spending by about $1 trillion over 10 years.) We believe that margins will stabilize because Elevance has begun to increase premiums and should eventually cycle through the benefit of raising prices across its customer base.

Shares of Chinese technology giant Alibaba traded down following strong first quarter performance. While the company reported revenue and profit growth for its most recent quarter, results narrowly missed consensus expectations. We believe that Alibaba is well positioned to benefit from Chinese investment in generative artificial intelligence (AI). The company also continues to invest in growing its businesses and improving operating efficiencies, even as it returns cash to shareholders through dividends and stock repurchases.

London-based Willis Towers Watson is one of the largest global insurance brokerage and consulting companies. The company continues to execute on its turnaround plan to improve profitability. The divestiture of its direct-to-consumer insurance distribution business at the end of 2024, however, caused a decline in cash flows for its most recent quarter and weighed on its shares. We like Willis Towers Watson’s high customer retention and ability to participate in nominal economic drift, and we continue to believe that the company’s turnaround plan will help drive growth and improve returns.

We appreciate your confidence and thank you for your support.

Trailing Returns

Data as of 30-Jun-2025

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The performance data quoted herein represents past performance and does not guarantee future results. Market volatility can dramatically impact the fund’s short term performance. Current performance may be lower or higher than figures shown. The investment return and principal value will fluctuate so that an investor’s 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.firsteagle.com or by calling 800.334.2143. The average annual returns are historical and reflect changes in share price, reinvested dividends and are net of expenses. “With sales charge” performance for Class A Shares gives effect to the deduction of the maximum sales charge of 3.75% for periods prior to March 1, 2000, and of 5.00% thereafter. The average annual returns for Class C Shares reflect a CDSC (contingent deferred sales charge) of 1.00% in the year-to-date and first year only. Class I Shares require $1MM minimum investment and are offered without sales charge. Class R6 Shares are offered without sales charge. Operating expenses reflect the Fund’s total annual operating expenses for the share class as of the Fund’s most current prospectus, including management fees and other expenses.

1. The annual expense ratio is based on expenses incurred by the fund, as stated in the most recent prospectus.
2. The Fund commenced operation April 28, 1970. Performance for periods prior to January 1, 2000 occurred while a prior portfolio manager of the Fund was affiliated with another firm. Inception date shown is when this prior portfolio manager assumed responsibilities.

Investments are not FDIC insured or bank guaranteed and may lose value.

Sincerely,

First Eagle Investments

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Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.