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Third Avenue International Real Estate Value Fund in registration
Not a new fund, just an acquisition by Third Ave Value of REMS International Real Estate Value-Opportunity Fund (REIFX - founders shares, REIZX - Z class). Though it appears from the prospectus that TAV will be adding Investor class shares with a 0.25% 12b-1 fee.
The Third Avenue complex has lost about 90% of assets under management over the past decade; when all else fails try an alternative to organic growth.
That would coincide with the beginning of the post-Marty Whitman era. He served as Third Avenue Managment LLC's CIO until the beginning of 2010. He stepped down as manager of TAVFX in 2012.
I was a TAVFX shareholder for quite awhile. Alas, everything Mr. Whitman thought he knew about value investing proved false in the case of the mortgage insurance companies he bought before, during, and after the housing crisis. I got out in time, with most of my gains, but Third Avenue rode everything all the way down and then imploded.
There's no question that he was way wrong about mortgage insurance companies. However, despite this moderate sized bet, the fund performed respectably before and during the housing crisis.
Let's put some dates and numbers to paper. MBI would seem to be a good proxy for his investments in the mortgage insurance business (what in the annual statements is counted in "Financial Insurance/Credit Enhancement").
Oct 31, 2008: 3.57% of portfolio in financial ins., all MBI. Oct 31,2007: 3.95% in financial ins., 64% of that in MBI. Oct 31, 2006: 3.55% in financial ins., 65% of that in MBI.
I'm not going back further. MBI's stock price peaked just before the end of 2006 (Dec 28 close of 73.31 per Yahoo). "In 2007, home prices started to tumble." NPR.
From Dec 28, 2006 to March 5, 2008 (the low point for MBI), TAVFX outperformed the average large cap value fund by over 2% (not annualized) while underperforming VEIRX by about 1%. M* chart.
In January 2008 the fund owned about 10% of MBI. That mistake by Whitman of doubling down brought its percentage of the fund's portfolio to around 5% (end of January N-Q). With the stock declining from his purchase price of $12.15 to a low of $2.29 on March 5, 2008 the position contributed around -4% to the fund's performance. Since then, MBI has gently risen in price.
Though his bets on mortgage insurers had a measurable impact on fund performance, bringing down a once superior fund to an average performing one, they did not seem to be the cause of the subsequent "implosion". That came later.
The fund started to underperform in the 2nd half of 2008, well after MBI had stabilized. Even at that, it had its moments and performed in line with large cap value funds until just a few months before Whitman resigned as manager, March 3, 2012. M* chart 2008-March 3, 2012.
Looking once again at those investor reports brings back awful memories. (That's possibly a good thing in the current environment.) It wasn't just MBIA; TAVFX went long on Ambac, Radian, MGIC, and added to its pain by investing in MBIA bonds. I recall that Whitman was involved in public disputes with another investor who was shorting that industry. Between October 2007 and March 2009, TAVFX lost over 60% of its value, measurably worse than the market overall. I was a DODGX investor at the same time. It kept pace with TAVFX's losses. In contrast to the outperformance "value" experienced during the tech wreck earlier in the decade, which probably lulled me into a false sense of security, the housing crisis exposed the propensity of more than a few "value funds" to fall into "value traps." Did I learn the lessons I should have? Some, certainly, but probably not all. Meanwhile, TAVFX's cumulative 10-year returns are less than one-fifth the broad market's.
Yes, the fund dropped 60%, and yes it held mortgage bond insurance companies other than MBI. Yes, it was painful. But it wasn't that much worse than the typical LCV fund. Here's a chart for peak to trough of the fund 10/11/07 to 3/9/09.
It lost 61.34%. A LCV index fund (VVIAX) lost 58.97%. TAVFX did worse, sure. A lot worse? No. If you want to use the word "implode", it's the value side of the market that imploded. "Value trap" implies active stock selection, but passive management did just about as poorly. Whitman made some mistakes but he must have made a number of good calls as well to have come out average.
Meanwhile, TAVFX's cumulative 10-year returns are less than one-fifth the broad market's.
That's the post-Whitman era, which was my original point. He resigned as CIO over a decade ago, and as manager of TAVFX nine years ago. Without Whitman the fund has indeed turned in an absolutely abysmal performance - bottom 3% (though not quite as small as 1/5, closer to 1/3 as much total gain as that of the entire equity market). A whole lot worse on a relative basis than Whitman did before, during, and after the housing crisis.
Regarding the particular mortgage bond insurers it held between Oct 2007 and March 2009, does it really matter? In Oct 2007 MBI constituted 64% of these holdings. FWIW, Radian (which M* says was primarily in other businesses) constituted 27%. The rest was noise.
I recall that Whitman was involved in public disputes with another investor who was shorting that industry
“MBIA is being victimized by an apparently well organized bear raid headed by William Ackman of Pershing Square Capital Management,” Mr. Whitman wrote.
Comments
https://thirdave.com/third-avenue-expand-re-platform/
Here's the prospectus supplement (Oct 29, 2020) from the other (acquired fund) side.
https://www.sec.gov/Archives/edgar/data/1396092/000138713120009434/rems-497_102920.htm
Presumably the new shares will be sold NTF; the existing REIFX shares are sold with a TF and no reduction in the $50K min at Fidelity and Schwab.
https://voices.whitman.syr.edu/whitman-timeline/martin-j-whitman-dies/
Let's put some dates and numbers to paper. MBI would seem to be a good proxy for his investments in the mortgage insurance business (what in the annual statements is counted in "Financial Insurance/Credit Enhancement").
Oct 31, 2008: 3.57% of portfolio in financial ins., all MBI.
Oct 31,2007: 3.95% in financial ins., 64% of that in MBI.
Oct 31, 2006: 3.55% in financial ins., 65% of that in MBI.
I'm not going back further. MBI's stock price peaked just before the end of 2006 (Dec 28 close of 73.31 per Yahoo). "In 2007, home prices started to tumble." NPR.
From Dec 28, 2006 to March 5, 2008 (the low point for MBI), TAVFX outperformed the average large cap value fund by over 2% (not annualized) while underperforming VEIRX by about 1%.
M* chart.
In January 2008 the fund owned about 10% of MBI. That mistake by Whitman of doubling down brought its percentage of the fund's portfolio to around 5% (end of January N-Q). With the stock declining from his purchase price of $12.15 to a low of $2.29 on March 5, 2008 the position contributed around -4% to the fund's performance. Since then, MBI has gently risen in price.
Though his bets on mortgage insurers had a measurable impact on fund performance, bringing down a once superior fund to an average performing one, they did not seem to be the cause of the subsequent "implosion". That came later.
The fund started to underperform in the 2nd half of 2008, well after MBI had stabilized. Even at that, it had its moments and performed in line with large cap value funds until just a few months before Whitman resigned as manager, March 3, 2012.
M* chart 2008-March 3, 2012.
It lost 61.34%. A LCV index fund (VVIAX) lost 58.97%. TAVFX did worse, sure. A lot worse? No. If you want to use the word "implode", it's the value side of the market that imploded. "Value trap" implies active stock selection, but passive management did just about as poorly. Whitman made some mistakes but he must have made a number of good calls as well to have come out average.
Meanwhile, TAVFX's cumulative 10-year returns are less than one-fifth the broad market's.
That's the post-Whitman era, which was my original point. He resigned as CIO over a decade ago, and as manager of TAVFX nine years ago. Without Whitman the fund has indeed turned in an absolutely abysmal performance - bottom 3% (though not quite as small as 1/5, closer to 1/3 as much total gain as that of the entire equity market). A whole lot worse on a relative basis than Whitman did before, during, and after the housing crisis.
Regarding the particular mortgage bond insurers it held between Oct 2007 and March 2009, does it really matter? In Oct 2007 MBI constituted 64% of these holdings. FWIW, Radian (which M* says was primarily in other businesses) constituted 27%. The rest was noise.
I recall that Whitman was involved in public disputes with another investor who was shorting that industry
From the NYTimes (repeating a link from above):