FUND WATCH


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.

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.

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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.




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