On June 23, 2016, the United Kingdom held a referendum which resulted in the majority of voters expressing a will for the United Kingdom to sever its existing arrangement with the European Union (“EU”). By voting to abandon the existing terms of its relationship with the EU, the referendum result has opened a host of European economic and sovereignty considerations which are likely to linger for some time. Uncertainty will be the norm as the long-term impacts of Brexit unfold.
At Third Avenue Management (Trades, Portfolio) we have steered through political and macroeconomic upheaval in our more than 30 years of investing. Events similar to “Brexit” in terms of shock value are simply facts of life for investors. As a result of these hard-earned experiences we have learned not to rely upon specific macroeconomic forecasts but instead strive to prepare for the unexpected. In this pursuit we favor companies with strong financial positions, modest valuations, and are mindful of fundamental risks such as currency mismatches. While these approaches do not fully minimize short-term stock price volatility, they do, in our view, reduce fundamental risks which could lead to permanent impairment of our capital. We also strive to exercise prudence with regard to position sizing and geographic and industry exposures.
As of June 22nd, the Funds had the following exposure to securities listed in the U.K.:
As our Real Estate team wrote in their most recent Shareholder letter, “Third Avenue has invested in companies with strong financial positions that are able to weather periods of market dislocations which will inevitably occur, and capitalize on opportunities presented in times of turbulence to emerge stronger and more valuable once conditions stabilize.”
Additionally, Third Avenue mutual funds tend to keep cash on hand to act as dry powder enabling us to act quickly and opportunistically when bargains become available. Notably, each equity fund deployed capital in the context of the Brexit related sell-off Friday and Monday.
We cannot predict what structure the U.K.’s modified agreement with the EU will ultimately take should the U.K. parliament ultimately invoke Article 50 of the Lisbon Treaty. And it is indeed far too early to draw deep conclusions as to what the ripple effects of that process would be on the rest of the EU, but we would like to reiterate our strong belief that, particularly in turbulent markets, it is critical that we continue to adhere to our bottom-up value investing discipline and not attempt to time the market. As fundamental value investors with a long history of success in varying market environments, we at Third Avenue are energetically on the lookout for opportunities to purchase securities of well-capitalized issuers at prices well below our estimates of their long-term value and are therefore increasingly excited by the opportunity set.
We thank you for your continued support and please call us at 212.906.1160 should you have any further questions.
Sincerely,
Third Avenue Management (Trades, Portfolio) Investment Team
Allocations are subject to change. The information in this material is for illustration and discussion purposes only. It is not intended to be, nor should it be construed or used as, investment, tax or legal advice, any recommendation or opinion regarding the appropriateness or suitability of any investment or strategy, or an offer to sell, or a solicitation of an offer to buy, any interest in any security. The information is also not intended to be a forecast of future events, or a guarantee of future results.
Third Avenue Funds are offered by prospectus only. Prospectuses contain important information, including, but not limited to, a description of investment risks, a schedule of fees, expense ratios, and should be read carefully before any investment decision is made. Certain information in these calls may represent the opinions of individual Third Avenue Portfolio Managers and research staff which may differ from the opinions of other Third Avenue Portfolio Managers or of the firm as a whole.
Certain information contained in this material constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe,” or the negatives thereof (such as “may not,” “should not,” “are not expected to,” etc.) or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of any fund sponsored by Third Avenue Management (Trades, Portfolio) LLC (each, a “Fund”) or other account may differ materially from those reflected or contemplated in any such forward-looking statement. Past performance is not necessarily indicative of future results. Any offer or solicitation of any Fund shall only be made pursuant to a prospectus or a final confidential private placement memorandum of the relevant Fund, which would supersede the information contained herein and in the presentations in their entirety.
