Third Avenue International Value Reopens
If your New Year's plans include an overhaul of your portfolio, the reopening December 20 of Third Avenue International Value fund presents an opportunity to add an unusual fund that invests in foreign stocks that most of its peers have likely overlooked.
But, says manager Amit Wadhwaney, you'll need to be patient and trust in his approach of buying only stocks that are "safe and cheap." He recommends investing in his fund (symbol TAVIX)only if you can wait at least three to five years before cashing out.
In truth, the safe and cheap approach to stockpicking isn't Wadhwaney's brainchild, but rather that of legendary value investor Marty Whitman, founder of the Third Avenue funds and still manager of Third Avenue Value.
Wadhwaney, who has managed International Value since its inception in December 2001, merely applies Whitman's philosophy to a foreign-stock fund. The fund, formerly a member of the Kiplinger 25, had been closed since July 2005.
Wadhwaney looks for solid companies trading at hefty discounts to the value of their underlying assets. He relies on balance-sheet analysis, as opposed to focusing on income statements, to determine value. "We tend to buy things that are widely out of favor and the payoffs we focus on tend to be long term in nature," says Wadhwaney.
While the fund mostly holds stocks of small and midsize companies, Wadhwaney calls himself "capitalization agnostic." During the years the fund was shut, he loaded up on shares of Capital Securities and President Securities, both based in Taiwan.
Wadhwaney says domestic politics and tensions with China have dampened enthusiasm among foreigners for Taiwanese stocks but that the problems are overstated. He says the island nation has a welcoming investment environment and an entrepreneurial culture that have spawned and nurtured strong financial and technology companies.
Political risk is not a problem for Polish broadband provider Netia, another Wadhwaney holding. But financial risk is because the company had been in bankruptcy. But, Wadhwaney says, the company has a reliable fiber-optic network and it has grown briskly to become the second largest provider of broadband services in Poland.
As Wadhwaney added these and other stocks from South Korea, Japan, Canada and Norway, the fund's cash position, nearly 51% when it closed in July 2005, dwindled to 10%. The decline in cash and an abundance of bargains prompted Third Avenue to reopen the fund.
As concerns about the subprime mortgage mess and slowing economic growth in the U.S. punish stock markets around the globe, says Wadhwaney, "almost wholesale panic is generating interesting valuations." When others are engaged in "indiscriminate selling," Wadhwaney says, "I want to be on the other side of those trades."
Also helping whittle down the cash position was an outflow of cash from the fund. International Value lagged most of its peers the past three years, and assets, which totaled nearly $2.4 billion at the end of 2006, were down to $2.1 billion recently.
Year-to-date through December 20, according to Morningstar, the fund was flat, lagging the MSCI EAFE index by nearly 8 percentage points and the average overseas fund focusing on small and midsized value companies by 1.5 percentage points.
Over the past five years, the fund returned 23% annualized, beating EAFE by an average of 1.5 percentage points per year and trailing its peers by nearly 1 percentage point per year, on average. Wadhwaney attributes much of the sluggish performance in recent years to the fund's big cash position.
Morningstar analyst Michael Breen says he remains confident in Wadhwaney's abilities and likes International Value because of its offbeat holdings and "deep-value discipline." The fund, he says, can add to a portfolio's diversification because it holds stocks that few other funds own.
"Wadhwaney kicks the tires and looks business by business, rather than at what is hot," says Breen.
Wadhwaney acknowledges that International Value often diverges from other foreign stock funds and will occasionally suffer bouts of inferior performance. But patience remains his mantra. "If stock prices are not right," he says, "we'll bide our time and file them away for future reference."
International Value doesn't levy a sales load, but does charge a 2% redemption fee on shares sold within a year of purchase. The expense ratio of 1.45% is slightly below-average for its category.
By Amy Bickers, freelance writer