Fund Management also increased its position in Apache Common (APA
), which was discussed in last quarter's letter, increasing the Fund's exposure to the oil and gas exploration and production ("E&P") sector to about 10%. The main attraction of our E&P investments (including Apache, Devon Energy, Encana and Total) is common stock pricing at a significant discount to our estimate of NAV with NAV consisting primarily of proved reserves of oil and natural gas. Each company in whose common stock the Fund is invested has a strong management team and a track record for generating attractive long-term NAV growth. Recently NAV growth has been weaker for our companies, and the overall industry, owing primarily to low natural gas and natural gas liquids pricing and slower than expected production growth from new oil plays. The poor overall sector stock performance and resultant divergence between the intrinsic value and market value of the common stocks has attracted the attention of activists who have targeted several companies including Hess Corp., Murphy Oil Corp., Chesapeake Energy Corp. and Occidental Petroleum Corp.The Value Fund sees the same disparity between the intrinsic value of corporate assets and public market prices. Although our companies have not been publicly targeted, the boards and management teams have taken actions to try to improve shareholder value such as selling assets and repurchasing stock (Apache) and pursuing an IPO of midstream assets (Devon).
We further discuss the Fund's recent investments in the energy sector, as well as how sector themes arise from our bottom-up investment approach, in the essay that closes this letter.
From Third Avenue Management
’s third quarter 2013 letter to shareholders