Yes Barrons, Third Avenue Is Going To Do Just Fine
Barrons questions whether Third Avenue can still outperform. Third Avenue has averaged 11.65% since 1990. It has an eclectic portfolio of companies most American investors have never heard of. Barrons recently had a piece entitled ” Can Third Avenue Get Back on Track ?” The answer is Yes. Third Avenue runs a deep value, extremely diversified portfolio that behaves differently from the American financial markets. Third Avenue Value Fund ( TAVFX) was founded in 1990. Over that time frame, it has averaged 11.65% versus 10.45% for the S&P 500. However, over the last ten years, the Value Fund has averaged 4.03% versus 8.01%. TAVFX data by YCharts The Value Fund has names that the average American investor has never heard of: Wheelock (OTCPK: WHLKY ), Pargesa (OTCPK: PRGAF ), Cheung Kong (OTCPK: CHEUF ), Investor AB (OTCPK: IVSBY ), and an eclectic portfolio of other names. There are also bonds, warrants, and other financial instruments. It’s a deep value fund. The goal is to buy stocks that have market caps trading well below net asset value. Third Avenue is looking for what they call a resource conversion. These include spin offs, mergers and acquisitions, special dividends, and leverage buyouts. Here is a link to an article that I wrote two months ago discussing the many investing merits of these companies. This is a style of investing. Like all styles, it has its day. In the late 1990s, deep value was not working. Growth and technology was in vogue. Then the markets crashed in 2001. Over the next few years, Third Avenue was on a roll. Part of this was due to its international holdings. Many of these Asian and Hong Kong based companies beefed up returns and handily outperformed American markets. As the Barrons article notes, there have been some missteps over the last few years. Catalyst Paper and Straits Trading ( OTCPK:STTSY ) were two dogs. What’s working now is everything. Biotech is on a roll. Technology is doing well once again. The NASDAQ has gotten back to where it was trading in the late 1990s. Once again, deep value is lagging. What also is hurting Third Avenue returns is its abundance of foreign holdings. The American dollar has been strong against all currencies and driven down the value of foreign stocks. This won’t last forever. It also has several energy stocks including Devon (NYSE: DVN ), Apache (NYSE: APA ), and Total (NYSE: TOT ). You know how they are performing. Eventually, the global financial markets will pull back, maybe even crash. Third Avenue will go down with it, just like 2001 and 2008/09. Then, it will recover. The question is whether it will recover faster than the S&P 500. Deep value is out of favor. What was hot in the late 1990s is hot now and what is out of favor then is out of favor now. If you want a blue chip portfolio, you should by the Vanguard S&P 500 (MUTF: VSPVX ). If you want something that has stocks that you or your local stock broker can’t find, look at Third Avenue. Disclosure: The author is long TAVFX, APA. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.