Out of the Ordinary Real Estate Player

Now that the housing market appears to be in full retreat, investing in real estate funds seems as fashionable as wearing white after Labor Day. But the funds have performed surprisingly well this year, and now one of the best has reopened to new clients.

Most property funds are pack animals, investing the bulk of their assets in high-yielding real estate investment trusts. Not Third Avenue Real Estate Value (symbol TAREX; 800-443-1021), which invests only about 30% of its $3-billion portfolio in REITs. Manager Michael Winer sees better deals in developers. He also deploys more money overseas than most of his peers; more than one-third of the fund's assets is in foreign stocks. Winer's strategy means the fund is no yield hog. It pays out about 1% annually.

One top holding is developer St. Joe (JOE), the largest private landowner in Florida. The stock, which hit $85 in 2005, recently fetched $48. As the stock fell, Winer bought more, boosting St. Joe to 8.1% of assets. He thinks the market will recognize its merits as St. Joe slowly converts its vast land hoard into bungalows for retiring baby-boomers. "I wish I could find six more companies like St. Joe," Winer says.

Over the past five years to August 1, his fund returned 19% annualized. That's one percentage point per year behind the group average. But over its eight-year history, Third Avenue's 19% annualized gain tops that of its rivals by more than two percentage points a year. And it achieved its record with about 30% less volatility than its average peer. Third Avenue fund has no sales charge, and annual fees of 1.14% are below average. In sum, this fund is a fine choice for tapping into an uncertain real estate market.