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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Constructive on deeply undervalued U.S. small caps, initiating new positions in Champion Homes and Versigent while leveraging strong balance sheets and corporate resource conversions to navigate rising credit stress."
During the third quarter of 2026, the Third Avenue Small-Cap Value Fund returned -3.31% net of fees, outpacing the MSCI USA Small Cap Value Index benchmark return of -4.25%. On a year-to-date basis, the strategy delivered a net return of 17.69% compared to 10.98% for the index. The managers emphasize that extreme valuation disparities between large-cap indices and small-cap value equities continue to favor smaller companies, which have generated strong relative strength year-to-date despite higher treasury and corporate borrowing costs. The investment team focuses heavily on balance sheet quality and financial self-sufficiency in the face of widespread credit stress. Rising borrowing costs, higher bankruptcy rates, and the fact that more than 40% of Russell 2000 index constituents lack profitability make active selection critical. The fund exploits two primary structural drivers: resilient balance sheets that provide downside protection against refinancing risks, and corporate resource conversions—including acquisitions, divestitures, buybacks, and spin-offs—that create substantial countercyclical shareholder value. Portfolio turnover reflected an active deployment pace with ten new initiations year-to-date. In the third quarter, the fund initiated long positions in Champion Homes, capitalizing on depressed sentiment in manufactured housing, and Versigent PLC, an automotive electrical architecture spin-off from Aptiv. Notable exits driven by completed or pending M&A included Catalyst Pharmaceuticals, Taylor Morrison Home, UniFirst, and BlueLinx Holdings, while PBF Energy served as the fund's largest quarterly contributor.
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