Value funds have gotten beaten up lately, with investments in badly beaten-up sectors like real estate and financials dominating their portfolios. But over time, it's likely that those who lose their faith in value investing will watch from the sidelines as value funds recover.
One value fund worth a second look is the Champion Funds-recommended Third Avenue Value Fund (FUND:TAVFX). While it's gotten hammered over the past year, its long-term track record suggests that any losses are likely to be temporary.
Fund facts
Inception date: Nov. 1, 1990
Expense ratio: 1.08%
Net assets: $10.2 billion
Minimum Investment: $10,000
About the fund
Third Avenue Value espouses the typical value philosophy by looking for long-term capital appreciation from companies it believes are priced below their intrinsic values. In addition to common stocks, the fund also acquires senior securities, such as preferred stocks and debt instruments, which have strong covenant protection and above-average yields.
Top holdings include Henderson Land (NASDAQ:HLDCY), a Hong Kong holding company; Toyota (NYSE:TM); and U.S. drilling contractor Nabors Industries (NYSE:NBR). The fund currently has about 10% in cash, with a substantial amount of its stock holdings in real estate holdings companies.
Since its inception nearly two decades ago, Third Avenue Value has been managed by a team led by Martin Whitman, who has been a value investor for more than 50 years. The bottom-up fundamental value approach used by the team has realized returns of 16.1% over the past five years and almost 10% over the past decade. The fund's minimal 5% turnover is a further indication of management's investment conviction in the positions it takes.
Risks
Investments in Florida real estate companies like St. Joe Company (NYSE:JOE) and mortgage-meltdown poster child MBIA (NYSE:MBI) appear to be the boating equivalent of spitting into the wind, as these investments have been a drag on the fund. On the other hand, investments in stocks like these may pay off over the long run for those willing to wait for their true value to shine through.
Portfolio fit?
Value investing rarely translates into instant gratification, and investors without the ability to take long-term outlooks may want to look elsewhere. Those investors with patience and the ability to wait for capital appreciation, however, may find the Third Avenue fund well worth the investment.
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