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What's Geography Got to Do With It?

These three managers see lots of value outside the United States.

Joel P. Bruckenstein, 06/12/2008

In what has become an annual ritual, each June I have the pleasure of previewing an investment panel at the upcoming Morningstar Investment Conference, to be held later this month in Chicago. This year, I profile three savvy investment pros who will participate in the closing session of the conference. Tech junkies will have to be content with our single technology story this month.

Some fund managers seem to fit neatly into a style box; but not these three. On the contrary, these managers are defined by their flexibility. Ian Lapey, Dennis Stattman and David Winters span the globe looking for investment opportunities. While each is primarily focused on the equities market, they are not afraid to seize upon other investment opportunities when they identify them.

Ian Lapey
Third Avenue Management, LLC
Although he is a senior analyst who manages more than $3.5 billion in a subadvisory capacity at Third Avenue Management, LLC, Ian Lapey is not exactly a household name, but that could change soon. Lapey has been named as the successor to legendary Marty Whitman as manager of the firm's flagship mutual fund, Third Avenue Value TAVFX.

While Lapey and the Third Avenue team are not international managers, they are more than willing to invest internationally when their nose for value leads them overseas. "We look for value wherever we can find it," Lapey said. "We look for out of favor stocks so we can buy them when they are cheap."

Over the last few years the international markets have been where the team has identified the majority of cheap investment opportunities. This overseas bias was clearly evident in Morningstar's most recent portfolio analysis, which indicated that 57.56% of Third Avenue Value's portfolio was invested in non-U.S. stocks.

One longtime holding, which the fund added to recently when the price dropped, is Toyota Industries Corporation. This diversified manufacturing firm in Japan owns a huge portfolio of securities. It also manufactures, among other things, electronics for hybrid engines and diesel engines, both of which are attractive businesses in the current energy environment. In total, the operating company has revenues of $19 billion, and it has recorded nine consecutive years of growth in both earnings and revenues. According to Lapey, net of debt, the firm sells for the just the price of the securities portfolio, which means investors are essentially getting the operating company for free. "We can't find opportunities like this in the U.S.," he said.

More recently, the fund has begun investing in real estate operating companies in Hong Kong. As is the case in the U.S., Third Avenue prefers operating companies to REITs because operating companies can reinvest their earnings back into the business. One favorite in this sector is Henderson Land Development. According to Lapey this firm is extremely well managed.

"The CEO owns roughly 60% of the business," Lapey said. "And he has a record of growing net asset value per share."PAGEBREAK

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