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Over the past twenty years, New York based Third Avenue Management has outperformed the US market by six percent annually. Third Avenue manages Manulife Investment's newly acquired AIC Global Focused Fund.
Watch this manager discuss where he's finding value today.
Ian Lapey discusses his firms "deep value" investment style pointing out that they like "safe" and "cheap."
Safe - 1) Strong financial position, high quality assets, relative absence of liabilities. 2) Competent management team - impressive long-term track record, whose interests are aligned with outside passive minority shareholders, like ourselves. 3) Understandable business - our investment process is very document driven, we need to have very good disclosure, and we need to be able to understand after a review of the financials in order to invest.
Cheap - "A significant discount from the intrinsic value or private market value. What we try to do in valuing the company, we put on the business person's hat, figure out a conservative valuation of the company as either a private entity or a takeover candidate, and then pay a significant discount to this private market value. We also want the business not only to be trading at a significant discount, but we want the business to have very attractive long term growth potential. So say, double digit long-term potential to compound net asset value."
Where in the world is Third Avenue finding value?
Highest concentration in Hong Kong - investing in several Hong Kong Real Estate operating and investing companies, accounting for about 24% of the portfolio. About 20% of the portfolio is in the U.S. - a mix of high-tech companies with huge cash rich balance sheets, and a large investment in BNY Mellon a huge asset management custodian. 11% in Canada - Forest products company and a couple of energy names.
Hong Kong real estate companies represent the biggest bet in the portfolio - these companies all have extremely strong financial positions, net debt to capital ratios no higher than 15%, the management teams have impressive long term track records, and own between 30-50% of the outstanding shares of the companies, so their interests are very much aligned with ours - and the stocks trade at a significant discount to our estimate of NAV. So currently today, the best examples for us; the most fertile ground for safe and cheap, is in these Hong Kong real estate and investment companies.
Henderson Land
Our biggest position is Henderson Land, a Hong Kong based company with very high quality assets primarily in the form of income producing real estate in Hong Kong, and a small but growing presence in mainland China. They also have a huge agricultural land "bank" in Hong Kong which should be a huge driver of growth for the company, and they own 39% of Hong Kong and China Gas, the sole provider of piped gas to Hong Kong, also with a presence in mainland China. The Chairman and CEO, Li Shau-Kee owns 54% of the common stock, so his interests are very much aligned with ours, and he has a great long term track record.
BNY Mellon
BNY Mellon is extremely well financed, and though they were battered a bit by the financial crisis, they weathered the storm quite well because they have very significant cash generative core businesses, i.e. asset custody, where they're the leading global custodian, with $22-trillion under custody, and asset management, where they have over $1-trillion in AUM. These businesses have performed very well, in the bear market and financial crisis, and in fact, their assets under management were up over 20% in the first quarter of the year, and assets in custody were up over 10%.
Source: Clientinsights.ca
