Third Avenue Small-Cap Value Reopens


Third Avenue Small-Cap Value Reopens

Investors now have a chance to get in on a fund that minimizes the downside risk and provides plenty of upside.

If you're a bargain hunter, you'll like Third Avenue Small-Cap Value, which has just reopened to new shareholders. Third Avenue Management's Marty Whitman is one of this generation's great practitioners of value investing.

Curtis Jensen, a worthy Whitman disciple, has run Small-Cap Value since its 1997 inception. Over the ten-year period through April 30, Small-Cap Value (symbol TASCX) returned an annualized 10%, an average of four percentage points per year better than the Russell 2000 index of small-company stocks.

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Jensen says the fund reopened because "we have more ideas than capital now," the reverse of the landscape in early 2006 when the fund closed. "Volatility presents long-term investors like Third Avenue with terrific opportunities to both buy and sell," says Jensen, who holds stocks for four years on average. He says that his "on-deck circle" of investment ideas is the most robust in memory.

Jensen looks for "safe and cheap" companies. By safe, Jensen means enterprises with bullet-proof balance sheets and the financial strength to weather harsh conditions -- such as today's environment -- without any need to raise external capital. He wants managements who keep the interests of outside shareholders foremost, and he seeks businesses that he can understand.


By cheap, he looks for stocks selling for at least a 30% to 40% discount from intrinsic value, which he describes as the price a "reasonable, knowledgeable business person" would pay for the company in an arm's length transaction.

As with the other Third Avenue Value funds, Small-Cap Value is marvelously eclectic, finding values in a wide variety of industries and geographies. For instance, the fund's largest holding is Sapporo Holdings of Japan. Sapporo is a large brewery, but in this case what lured Jensen was the company's extensive underlying real estate. When he valued the property, he calculated that the stock was trading at a steep discount to net asset value.

In a similar vein he invested in Vail Resorts (MTN), a major ski operator with hard-to-replicate resorts and large land holdings. Elsewhere, corporate restructuring, a perennial investment theme, led him recently to two totally different investments: Imation (IMN), a U.S.-based manufacturer of data-storage devices, and Lanxess AG, a German chemicals company spun out of Bayer. About two-thirds of the fund's $1.9 billion in assets is invested in U.S. stocks and 14% is in Canadian stocks.

The nice thing about putting money with a disciplined value investor who does his homework is that you minimize downside investment risk and share in the upside.

Third Avenue Value Small-Cap Value's annual expenses are 1.09%. The initial minimum investment requirement for a regular account is $10,000, although you can open an IRA with just $2,500.