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The fund, once led by a great investor known for finding opportunities in distressed assets, is outperforming the market, but with a slightly different focus. The Third Avenue Value Fund (TVFVX) outperformed the S&P 500 in 2022, up 11.2%, while the broad market index fell 19.4%. The fund will crash the S&P 500 again in 2023 – up 15% compared to the index’s rise of about 5.4% – as the market enters its third month of what promises to be another volatile year. Mount TVFVX .SPX YTD The fund outperforms the S&P 500. The fund, which has a 1.45% fee and a $2,500 minimum initial investment for its investor class, has increasingly moved away from distressed assets as a low-interest-rate environment cooled the market . Instead, the management of the 30-year-old fund is looking around the world for cheap assets that others have overlooked. “If you are an adventurer and an adventurous investor, then the bigger and wider your investment universe, the better,” said Matt Fine, the fund’s portfolio manager since 2017. “You have to analyze situations where people become very pessimistic or fearful and essentially run in a different direction,” he said. His job? Looking for “assets that have long-term or even growing value, and looking for those businesses within companies that are well funded enough to withstand whatever hardships they face.” ‘Go where the opportunity is’ Fine said this could happen by looking at trends both in the country and in the industry. On a country level, he said his team has been keeping an eye on the United Kingdom since it left the European Union in 2020 in a move dubbed “Brexit”, given the deteriorating position of companies in the country and the British pound sterling. This can also happen within an industry. Fine points to copper as an example, noting that it is becoming more and more in demand, but at the same time more scarce. Capstone Copper, a Vancouver-based coal miner listed on the Toronto Stock Exchange, is the fourth largest of the fund’s 32 assets, accounting for about 5% at the end of 2022. more than 40% in 2023. International markets have become increasingly attractive over the past year as investors frustrated by a down year for US equities and bonds and a rising dollar have looked elsewhere for safety. But international equities also come with unique risks, such as war or natural disaster, that can affect assets based in these typically small markets. US-based companies accounted for less than a quarter of the entire portfolio at the end of 2022. Germany followed with just over 12%. The UK, Canada and Singapore rounded out the top five countries with a single-digit percentile. In the US, Fine said the firm’s rejection of high growth as a deep value by long-term investors helped it outperform when tech stocks tumbled last year. The tech Nasdaq Composite lost 33.1% in 2022 as U.S. equity investors ditched growth stocks due to their historically poor performance during periods of elevated interest rates. “In my view, the fact that many super-expensive, growth-oriented mega-cap companies have lost value doesn’t really change the big picture given the opportunities I have in mind,” he said. “It didn’t interest us from the beginning and it still doesn’t interest us.” Meanwhile, the US companies that the firm has insured its bets on have outperformed the broader market. Tidewater, an offshore energy company listed on the New York Stock Exchange, is up 244% in 2022 and up 34% this year. The fund resorts to holding cash in a market where it sees no opportunity. While the amount of cash increased between the third and fourth quarters of 2022, Fine said it was the result of a reduction in underperforming assets, and not because his team saw a lack of investment opportunities. He said those earnings are likely to be invested back into shares they believe fit the fund’s mandate in the near future. Fine said his team ends up looking for assets they consider cheap, no matter what country they are in. time. He said that such opportunities are usually not available in companies with large market caps. At the end of 2022, the fund owned just over 40% and 30% of its assets in small and mid-cap companies, respectively. This is compared to 27.9% in large-cap stocks. Less than 1% of his holdings were microcaps. “You want to be able to go where there are opportunities,” he said. “I think it takes experience and the ability to be an adventurer on a global scale. Experience really helps, which is why being in developed and emerging markets around the world for 23 years makes a big difference.” “We Can Compete” Part of this is also due to the changing of the guard and the changing economic situation in the US. Fine joined the firm right out of Hamilton College, but had known for a long time that he wanted to become an investor. “At times I was a kid in my parents’ basement, sitting at the computer, trading stocks, having no idea what I was doing,” he said. He began his career in the late 1990s and watched the dot-com bubble burst as the new century began. Fine said the moves in the US stock market over the past year seem eerily similar. “There is an expression that history rhymes but does not repeat,” Fine said. “This is about as close to repetition as I ever thought I’d see it.” “We’re going through a downdraft, something very similar to this, where people just get carried away and fundamental analysis just isn’t being done,” he added. “Not much evaluation work is being done. Until recently, people didn’t seem to care how much they pay for security prices, and what you pay has a huge impact on what your profit will be. When Fine joined the firm as a new employee, he was advised to get close to Marty Whitman, founder and co-chief investment officer of Third Avenue Management, who was previously known for his work in troubled and restructuring companies. You need to sift through situations where people have become very pessimistic or scared and essentially running in the other direction.Portfolio manager Matt Fine Fine was able to work under Whitman and eventually led the value fund, which was one of the first created by the company in 2017, a year before Whitman’s death. companies, investors who invested $10,000 in the fund when it was created in 1990 would have received $240,552 at the end of 2022, representing an annual return of about 10.4%. troubled market as an era of lower interest rates has chilled space investment opportunities. With the stakes rising again, Fine said the fund is likely to focus on its current global mission rather than return to what was its founding manager’s bread and butter. He believes his team’s focus – focusing on less capitalized, out-of-fashion, global stocks, combined with an opposite approach and a long-term, value-driven view – is unique in a time of rising indexation and a focus on growth stocks. “There was… a huge range of global public equity markets left open, left to people like us, and it hasn’t been particularly competitive in recent years, so we’ve been able to succeed in terms of returns. what we have,” he said. “I think we’re very good at it. I think we can compete.”
Credit: www.cnbc.com /
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