Mohamad Faizal Bin Ramli/iStock via Getty Images
Dear Fellow Shareholders,
For the three months ended June 30, 2026, the Third Avenue Value Fund (the “Fund”) returned 1.25%, as compared to the MSCI World Index1, which returned 13.76%, and the MSCI World Value Index2, which returned 9.21%. Performance during the quarter increased the Fund’s year to date return to 8.63% through June 30, 2026, as compared to 9.69% for the MSCI World Index and 10.50% for the MSCI World Value Index. As of quarter-end, annualized Fund performance for the trailing three-year and five-year periods was 15.35% and 14.68%, respectively.
Performance Discussion
Performance during the quarter was modestly positive in an absolute sense and we are reasonably pleased with absolute performance year-to-date. However, performance during the most recent quarter significantly trailed broad market indices. After a very good first quarter, Fund performance ended the first six months of 2026 with a strong showing on an absolute basis and a relative return similar to that of broad global equity indices, such as the MSCI World Index.
During the quarter ended June 30, 2026, global equity markets were heavily influenced by a fervor for semiconductor makers and, in some cases, for highly speculative stocks of companies perceived to be involved in development of artificial intelligence. During the period, the NASDAQ 100 Index gained 27.73% with the pace of gains from March lows making headlines throughout the quarter. Meanwhile, the Philadelphia Semiconductor Index returned 87.98% during the second quarter. Given the Fund’s strategy of investing in out of favor, temporarily depressed areas of global equity markets and the Fund’s current positioning, which is significantly weighted towards non-U.S. equities, these developments during the quarter were not supportive for the Fund’s relative performance. Significant strength of the U.S. dollar relative to most foreign currencies was also a headwind to Fund performance during the quarter, both absolute and relative.
While performance has been broadly satisfactory, naturally we have been encouraged by our experience in some investments while frustrated by others of late. In our experience, this is the rule rather than the exception and is indicative of a reasonable amount of portfolio diversification, notwithstanding our concentrated approach to portfolio management.
During the quarter, the most significant positive impacts upon performance were produced by easyJet (EJTTF), Horiba (HRIBF), JEOL (JELLF), Paltac (PCCOF) and Capstone Copper (CSCCF). We provide a separate discussion of events surrounding easyJet and Paltac below. It is also worth noting that the positive performance contributions from Robert Half and Harley-Davidson, two U.S. small-cap companies purchased during the preceding quarter, were close behind the investments listed above in terms of performance contribution. Capstone Copper produced a significant performance contribution during the quarter as its share price staged a strong recovery following a weak first quarter performance. Share price weakness earlier in the year had resulted from the company experiencing operational challenges and revising 2026 production guidance as a result. Mining is a difficult business and we remain unperturbed by small fluctuations in short-term production guidance given our strong view of the long-term, secular attractiveness of good quality copper mining assets. We are of the opinion that the high probability of looming global copper supply shortages, relative to secularly growing copper demand, remains underappreciated today.
With regard to our investments in Horiba and JEOL, two Japanese companies involved in making semiconductor capital equipment, during the fourth quarter of 2025 we discussed some degree of frustration that JEOL’s critical nature within the supply chain for cutting edge semiconductors had not been appreciated or reflected in its share price, even while somewhat similarly exposed Horiba had performed well, along with many industry peers, on the back of very strong capital spending by semiconductor manufacturers. Central to the frustration at that time is our strong view that there are many critical chokepoints within the semiconductor supply chain and, while scope of the revenue opportunity for certain links in the chain are smaller than the revenue opportunity for the semiconductor manufacturers themselves, TSMC for example, those links in the chain are nonetheless critical. In other words, one can’t make the chips without the machines that make the chips, and one can’t make the machines without various critical machine components made by the likes of Horiba. In other cases, one can’t use the machines made by the likes of ASML without accompanying machines made by the likes of JEOL. An additional attraction is that in various of those smaller but critical supply chain links the industries are highly concentrated and commonly dominated by two or three participants. It has also been our experience that we have had opportunities to purchase shares of several of these critical companies, many of which are based in Japan, at very modest prices, particularly when compared to the exorbitant share prices of many of the global companies that are the public faces of chip manufacturing. It is pleasing to see a growing recognition of the interconnectedness of the industry begin to be reflected in share prices of the lesser-known companies.
However, on the more frustrating end of the performance ledger were Tidewater (TDW), Valaris (VAL), Harbour Energy (PMOIF), BMW (BMWKY) and Jardine Cycle & Carriage (JCYCF). Although, it should be noted that both Tidewater and Valaris remain among the strongest contributors to Fund performance year-to-date. Tidewater, Valaris and Harbour share a close association with offshore energy production. The former two companies provide offshore energy services through Tidewater’s operation of the world’s largest fleet of platform supply vessels and Valaris’ operation of one of the world’s largest fleets of offshore drilling rigs. Harbour Energy is the Fund’s only direct investment in an actual producer of oil and gas. The shares of Tidewater and Valaris have declined significantly from recent highs. It is not entirely surprising that this group of investments weakened as a perceived line of sight to an end of the war in Iran and a reopening of the Strait of Hormuz recently came into view, though we feel strongly that this type of knee-jerk reaction belies a few key points.
First, governments across the world have become materially more focused on energy security as a result of recent intermittent energy supply shocks. This is likely to be an enduring trend, in our view. A similar phenomenon can be observed as many countries initiate a drive towards defense self-reliance. The growing energy conscientiousness is likely to add pace and amplitude to a cyclical recovery that was already building in the offshore energy services industry. A drive to create energy security and resilience against price shocks has been impacting the policy of many governments and companies in recent years, particularly following the energy supply disruptions that occurred as Russia invaded Ukraine. Energy price declines from recent highs are unlikely to diminish those agendas, in our view.
Second, over the last few months, most global countries with significant strategic oil reserves have meaningfully depleted those reserves in a coordinated effort to manage the risk of runaway energy prices during the closure of the Strait of Hormuz. As of late June, the International Energy Agency estimated that “cumulative oil supply losses from producers in the Middle East now exceeds 1.3 billion barrels.” The direct impact is that “On average, global oil inventories have fallen by 3.8 million barrels per day since the start of the conflict.” In the United States, the Strategic Petroleum Reserve (“SPR”) was drawn down materially during the Biden administration in response to supply disruptions and rapid increases in energy prices as the world recovered from COVID faster than oil production could recover, causing inflationary pressures to rise to the fore. The subsequent slow and gradual rebuild of the SPR has now been punctuated by the very large and rapid SPR drawdown implemented by the Trump administration to mitigate the Iran-related energy shock, quickly depleting the U.S. SPR to levels last seen in 1983.
To our knowledge, the pace of global oil inventory drawdowns is unprecedented. However, strategic reserves are finite and cannot be used as an indefinite stopgap. In the end, even when current supply disruptions are resolved, global strategic reserves will need to be replenished to reestablish some type of buffer against the potential for even larger energy supply and price shocks when future disruptions inevitably occur. Rebuilding global strategic and industrial oil inventories will take years and will add incremental oil demand during that process. Long-life offshore energy supplies will play a critical role in supporting energy security and supply with which to meet future demand. These are realities which are very unlikely to be impacted by very recent declines in global energy prices. In a word, we view our investment thesis, as it relates to energy services, as having been strengthened in recent months.
Tangible Assets, Resource Conversions & Shareholder Wealth
During the quarter, the Fund benefited from two holdings becoming subject to takeover approaches. For long-time Fund holding easyJet plc, it was certainly an eventful second quarter. The closure of the Strait of Hormuz, subsequent energy price increases, related fears of a potential shortfall of jet fuel in Europe, and a generalized fear of strains on U.K. consumer budgets due to energy price-driven inflation were unkind to shares of easyJet and other European airlines towards the end of the first quarter and early in the second quarter. As the second quarter progressed, however, energy prices began to subside as hopes of conflict resolution grew and adjustments to European refinery operations, as well as increased imports, successfully mitigated the risk of a jet fuel shortfall for the time being. In the midst of this whirlwind of uncertainty, easyJet was approached by a potential acquirer, U.S.-based alternative investment firm Castlelake, which explicitly describes itself as an asset-based investor. Castlelake has increased its indicative offer to acquire easyJet several times since the initial approach and, naturally, easyJet’s shares have responded favorably. easyJet’s board of directors recently communicated that it is inclined to recommend Castlelake’s latest offer to shareholders. To be clear, at the time of this writing it is still possible that a formal offer from Castlelake may not ultimately emerge or that details of the offer may not meet regulatory requirements. It is also possible that other bidders for the company will emerge.
However, an asset-based attraction to the shares of easyJet is a concept that certainly resonates with our team. In fact, the company’s underlying asset value was central to our investment thesis as well. easyJet owns a very valuable, unusually young and homogeneous fleet of narrow-body aircraft. easyJet’s fleet is comprised of more than 350 aircraft in the A320 family. The company also has a large aircraft order book, with near-term delivery schedules, which is also a coveted and difficult to obtain asset in the airline industry, given significant production limitations at both Boeing and Airbus. Additionally, easyJet’s European airport slots in highly capacity-constrained airports are scarce and valuable assets. What is also idiosyncratic to easyJet is that the company owns an unusually large portion of its fleet with ownership heavily weighted towards its most desirable recent vintage aircraft, whereas leased aircraft are a minority. High ownership of an aircraft fleet is typically associated with a company incurring large amounts of debt to purchase the aircraft. However, in 2021, as the airline industry had begun to emerge from the pandemic, easyJet conducted a large rights offering to ensure financial strength in a period of great uncertainty, which has now left the company in a position of having both a very high ownership of its fleet and a net cash balance sheet. Certainly, none of this will be lost on a potential acquirer, whether Castlelake or otherwise.
Far from the U.K., the Fund has owned shares of Paltac Ltd., Japan’s largest distributor of health and beauty products, daily necessities, and over-the-counter pharmaceuticals, since the second quarter of 2024. During the Fund’s ownership period, both the operating performance of the business and the total return of the shares have performed well and largely in keeping with our expectations. The company is one of two dominant players in its industry, which entails gathering products from thousands of manufacturers and distributing them to thousands of retail points of sale. The industry is relatively slow-growing and competitive strength derives from a nationwide network of well-located modern distribution facilities, extremely efficient operations and sophisticated technology that enables value-added services to customers.
Furthermore, the evolving pressures being exerted upon Japanese management teams and corporate boards to improve capital allocation decision-making, reduce cross-shareholdings and simplify corporate structures continues to gain momentum. This broader Japanese corporate evolution and details specific to Paltac were in mind in June 2024 when we wrote “…the looming possibility of Paltac being taken over by its controlling shareholder is also worth mentioning. Medipal Holdings Corporation, a publicly traded prescription drug wholesaler, owns more than 50% of Paltac stock today and sports its own overcapitalized balance sheet. Medipal, which benefits operationally from the technology and automation expertise of its subsidiary Paltac, could at some point offer to acquire Paltac in an effort to improve its own capital efficiency.” In May of 2026, Paltac’s parent company Medipal did indeed launch an all-cash tender offer for the 47.6% of Paltac shares it did not already own. The offer price of JPY 6,650 per share amounts to a reasonable premium of approximately 40%, compared to the pre-announcement price, and the tender offer is scheduled to close in early July. It is likely that this tender offer will mark the end of a successful investment in Paltac for the Fund.
As disparate as a U.K. leisure airline and a Japanese consumer products distribution business may seem, as it relates to our investment considerations, these two businesses share several crucial commonalities that make them appealing within the context of our investment approach. Both companies derive their strategic positioning from substantial tangible underlying asset portfolios, which were built over decades and would be nearly impossible to replicate in the foreseeable future. Paltac’s tangible asset base is its Japan-wide network of large modern distribution warehouses in locations suited to serving very dense urban populations and its sizeable net cash position. For easyJet, the tangible asset base is its fleet, order book, airport slots and net cash position. From our perspective, valuable and strategic tangible asset portfolios also provide the benefit of downside valuation protection and relative ease of valuing the business in a downside scenario, which is often analytically similar to a liquidation value of the company’s underlying assets, net of all liabilities. For example, in the last ten years, easyJet has endured Brexit, COVID, a UK gilts crisis paired with a U.K. baggage handling crisis and now a war in Iran. While each episode was very challenging from an airline income statement perspective, and in two cases provided attractive entry points for Third Avenue strategies to invest, tangible underlying asset value provided important valuation protection for the shares and prevented temporary disruption from becoming an existential threat to shareholder value.
Moreover, when share prices are depressed relative to replacement value of important and valuable assets, that is a recipe for encouraging takeover bids by acquirers attracted to the asset portfolios, namely Medipal and Castlelake in these two cases. It also adds fuel to the fire when attractive, hard-to-replicate assets are housed inside of very well-financed corporations that will not saddle a potential acquirer with associated indebtedness and, therefore, offer flexibility for the acquirer’s strategy and timing of future value maximization. Furthermore, when the potential acquiree is a well-financed company, that puts the company in a position of strength when negotiating transaction terms, rather than a position of distress and in need of a transaction. As Ben Franklin famously said, “Necessity never made a good bargain.”
In summary, it is our view that buying cheap and well-financed companies that own valuable tangible assets offers a variety of benefits including downside protection, relative ease of valuation and increased probability of creation of increased shareholder wealth through resource conversion, which is incremental to the wealth created through the ordinary income of the business itself. In these two cases, the means of incremental wealth creation through resource conversion is a takeover premium. Looking across many of the Fund’s holdings today, ownership of strategic, very difficult to replicate tangible assets immediately come to mind, such as U.S. cement and aggregates production assets, an area in which many strategic transactions have taken place. The Fund owns U.S. cement and aggregates assets today at deeply discounted valuations through non-U.S. companies Buzzi and Taiheiyo Cement, both of which derive the bulk of their underlying asset value from U.S. assets. Offshore energy service companies’ fleets of tangible assets, owned and operated by Fund holdings Tidewater, Valaris and Subsea7, are also critical and would be nearly impossible to replicate in the foreseeable future. In our view, there are few global assets as strategic and difficult to replace as a long-life copper mine in a reasonable political jurisdiction, such as the assets owned and operated by Lundin Mining (LUNMF) and Capstone Copper (CSCCF). In the case of Lundin, it appears probable to us that the company’s Vicuna district development project will represent the world’s most important copper development project for the next decade at a time of developing copper supply shortages.
Quarterly Activity
During the quarter ending June 30, 2026, the Fund initiated a new position in thyssenkrupp AG (TYEKF). The fund also exited its position in Ayala Corp. (AYALY) and its long-held position in Compania Sud Americana de Vapores S.A.
thyssenkrupp AG is a German industrial conglomerate that operates across five segments, including steel, marine systems, automotive technology, material services, and decarbon technologies. thyssenkrupp is perhaps best known for its German steel operations but the company is a multinational organization with diversified operations in various stages of cyclical recovery. While we believe the company stands to benefit from a cyclical recovery in several underlying business segments and an eventual turnaround of its long-suffering steel operations, we view the company as a catalyst-rich special situation with many investment attributes that are independent of underlying cyclical recoveries.
With a history dating back to 1811, thyssenkrupp was formed in 1999 through the merger of Thyssen and Krupp, which provided increased scale and opportunities for synergies in a consolidating European steel industry amid intensifying global competition. Post merger, the company pursued an aggressive globalization strategy and vertical integration, which ultimately faced mounting setbacks from 2008. In response, the company accelerated divestitures in the 2010s to streamline operations and reduce debt amid persistent European steel sector weakness.
A major turning point came in 2020, when the company sold most of its elevator business to private equity for €17 billion. The elevator business had long been the company’s crown jewel, but the divestiture allowed the company to reduce the heavy debt load it had been carrying and freed capital for further restructuring. In 2023, a new CEO was appointed from outside the company with a mandate to lead a complex multi-year corporate transformation process. From that point forward, the company’s historical sacred cows would no longer be protected and all options for fixing the rudderless company would be on the table going forward. In 2025, the company announced the intention to transition to a financial holding company, with ownership stakes in independently operated business units open to third-party capital. The first step in this transition was the spin-off of a 49% stake in TKMS, one of the leading producers of conventional submarines and surface vessels in Europe, which occurred in October 2025. A subsequent step was signaled in June 2026 when the company announced the intention to spin-off a 49% stake in the Materials Services business by the end of calendar 2026. By 2030, management intends to separate the remaining three business segments, namely Steel, Automotive and Decarbon Technologies. Of the remaining businesses, Steel has been the most challenged, although prospects appear to have improved given an ambitious restructuring agreement with Germany’s largest labor union and recently announced European Union plans to reduce steel import quotas by 50% and to raise steel import tariffs by 50%.
During the quarter, the Fund was able to acquire shares at a deep discount to a conservative estimate of net asset value, with prospects for improved operating performance and growth at the underlying business units as they begin life as standalone entities with independent management teams, improved incentives, and tailored capital structures. Moreover, we see a defined path to surface value for shareholders as management executes its transformation strategy, with embedded optionality provided by a strong financial position and the potential for value-enhancing corporate actions.
Thank you for your confidence and trust. We look forward to writing again next quarter. In the interim, please do not hesitate to contact us with questions or comments at clientservice@thirdave.com.
Sincerely,
Matthew Fine
Important Information
This publication does not constitute an offer or solicitation of any transaction in any securities. Any recommendation contained herein may not be suitable for all investors. Information contained in this publication has been obtained from sources we believe to be reliable, but cannot be guaranteed.
The information in this portfolio manager letter represents the opinions of the portfolio manager(s) and is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed are those of the portfolio manager(s) and may differ from those of other portfolio managers or of the firm as a whole. Also, please note that any discussion of the Fund’s holdings, the Fund’s performance, and the portfolio manager(s) views are as of June 30, 2026 (except as otherwise stated), and are subject to change without notice. Certain information contained in this letter 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 may differ materially from those reflected or contemplated in any such forward-looking statement. Current performance results may be lower or higher than performance numbers quoted in certain letters to shareholders.
Date of first use of portfolio manager commentary: July 10, 2026
1 The MSCI World Index captures large and mid-cap representation across 23 Developed Markets (DM) countries. With 1,320 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. Results for the index are inclusive of dividends and net of foreign withholding taxes.
2 The MSCI World Value Index captures large and mid cap securities exhibiting overall value style characteristics across 23 Developed Markets (DM) countries. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield. Results for the index are inclusive of dividends and net of foreign withholding taxes.
For the Third Avenue Glossary please visit here.
Past performance is no guarantee of future results; returns include reinvestment of all distributions. The above represents past performance and current performance may be lower or higher than performance quoted above. Investment return and principal value fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. For the most recent month-end performance, please visit the Fund’s website at www.thirdave.com. The gross expense ratio for the Fund’s Institutional, Investor and Z share classes is 1.16%, 1.39% and 1.09% , respectively, as of March 1, 2026.
Risks that could negatively impact returns include: fluctuations in currencies versus the US dollar, political/social/economic instability in foreign countries where the Fund invests lack of diversification, and adverse general market conditions.
The fund’s investment objectives, risks, charges, and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company, and it may be obtained by calling 800-443-1021 or visiting www.thirdave.com. Read it carefully before investing.
Distributor of Third Avenue Funds: Foreside Fund Services, LLC.
Current performance results may be lower or higher than performance numbers quoted in certain letters to shareholders.
Third Avenue offers multiple investment solutions with unique exposures and return profiles. Our core strategies are currently available through ’40Act mutual funds and customized accounts.
Click to enlarge
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
GIPHY App Key not set. Please check settings