Tickers in this Article: BAM, GGP, SPG, ESV, NBR
The Third Avenue Family of mutual funds is one my favorite sources of ideas. Founded by legendary value investor Martin J. Whitman, the company's credo of investing says it all: "Since our founding in 1986, Third Avenue Management has utilized a disciplined fundamental, bottom-up approach to identify appropriate investments with the sole objective of delivering superior returns with limited investment risk, over the long term. We are guided by one proven value philosophy, which focuses on the strength of a company's balance sheet and the discounted price of its securities. Our belief is that a strong, well-managed company can survive difficult environments, and the price of its securities will eventually reflect its true intrinsic value."

Clearly the company's focus on those value principles laid forth by Benjamin Graham and practiced by investing greats like Warren Buffett and Mason Hawkins is the soundest approach to investment management.

Let the Numbers Speak
Third Avenue Management currently manages a group of specialized funds that all adhere to the above philosophy. The Third Avenue Value Fund, currently managed by Mr. Whitman, proves why value works. Over the 10-year period ended December 31, 2009, the Third Avenue Value Fund delivered a 7.3% annualized return versus -0.9% for the S&P 500 Index. That's an enormous difference. A $10,000 investment would have more than doubled over the past decade against a loss of capital in the S&P. (For related reading, check out Picking The Right Mutual Fund.)

Piggyback a Legend
The Third Avenue Value Fund's top 10 holdings is an eclectic group to say the least. Investors would be wise to visit the company's website regularly as a great source of potential investment ideas. Investors should always remember that holdings are subject to change at anytime. But because the value approach emphasizes a low turnover investment program, you are comfortable knowing that there is no rapid fire trading going on.

Interestingly, the fund's top two holdings are two Hong Kong-based companies, Cheung Kong and Henderson Land Development. Individual investors could surely access these names via their online broker, subject of course to any currency exchange fees, etc. They are worth mentioning because together these positions account for over 26% of the funds assets. While several of the other top 10 holdings include international names, the fund does have significant stakes in U.S. names.

Over 4% of assets is committed to Nabors Industries (NYSE:NBR), an oil and gas land and offshore driller. As goes the price of oil, so does demand for drilling in a lagging fashion. With oil prices back at an attractive price, oil companies are incentivized to seek out new sources. In addition to Nabors, I like Ensco (NYSE: ESV) as a better long-term play. Unlike Nabors, Ensco specializes in offshore drilling, especially ultra deep water drilling rigs. With the big oil deposits coming in harder to reach places, demand for Ensco's ultra deep water rigs looks very promising. In addition, the company has no net debt and a P/E of less than eight. (For more, see A Guide To Investing In Oil Markets.)

Another top holding for the Fund is Brookfield Asset Management (NYSE:BAM), a publicly owned asset management company that invests in the property and infrastructure sectors. Both asset management and real estate have suffered over the past couple of years, but BAM appears to be one of the strongest players. This will likely lead to greater opportunities down the road. Indeed the company just recently got involved with assisting shopping mall operator General Growth Properties (NYSE:GGP) raise capital to assist from emerging from bankruptcy. And its doing so along with two of GGP's largest creditors to refuse an "inadequate" buyout offer from Simon Properties Group (NYSE:SPG).

The Bottom Line
Value guys like Marty Whitman don't invest based on any popularity contests or consensus views. Their approach is firmly rooted in a disciplined approach to seek opportunities trading at discounts from future intrinsic value. It's always a good idea to dig deeper into their holdings. (For more, see The Value Investor's Handbook.)

comments powered by Disqus

Trading Center