Third Avenue Value Fund Trails Indexes as AI Frenzy Skips Its Holdings

The Third Avenue Value Fund returned 1.25% in the quarter ended June 30, 2026, well behind the MSCI World Index's 13.76% and the MSCI World Value Index's 9.21%. Year to date, the fund is up 8.63%, versus 9.69% and 10.50% for the two benchmarks. The second quarter was a story of a market that was not the fund's market.

Global equity markets were consumed by a rush into semiconductor stocks and companies perceived as artificial intelligence plays. The NASDAQ 100 gained 27.73% from March lows. The Philadelphia Semiconductor Index returned 87.98% in the quarter alone. The Fund's strategy of buying out-of-favor, temporarily depressed stocks, with a heavy non-U.S. tilt, missed that rally. The strong dollar added to the drag.

The quarter's biggest positive contributors were easyJet (EJTTF), Horiba (HRIBF), JEOL (JELLF), Paltac (PCCOF), and Capstone Copper (CSCCF). Capstone Copper bounced back after a weak first quarter when operational problems forced a production guidance cut. The fund's managers said they remain "unperturbed by small fluctuations in short-term production guidance" given their view of long-term copper demand and looming global supply shortages.

Horiba and JEOL, two Japanese suppliers of semiconductor capital equipment, finally got some recognition. The fund had complained in late 2025 that JEOL's role in the chip supply chain was being ignored even as Horiba and others rallied on semiconductor capital spending. The managers wrote that "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." They noted that many of these niche suppliers, especially in Japan, trade at modest prices compared to the high-profile chip names. ASML stock page

On the losing side were Tidewater (TDW), Valaris (VAL), Harbour Energy (PMOIF), BMW (BMWKY), and Jardine Cycle & Carriage (JCYCF). Tidewater and Valaris remain strong year-to-date contributors. All three energy-related names fell as the market priced in a possible end to the war in Iran and a reopening of the Strait of Hormuz.

The fund pushed back on that reaction. Global governments have become more focused on energy security after recent supply shocks, the managers wrote, and that trend is "likely to be an enduring trend." Strategic oil reserves have been depleted. The International Energy Agency estimated cumulative oil supply losses from the Middle East exceed 1.3 billion barrels, with global inventories falling 3.8 million barrels per day since the conflict began. The U.S. Strategic Petroleum Reserve has been drawn down to levels last seen in 1983. "Strategic reserves are finite and cannot be used as an indefinite stopgap," the managers wrote. Rebuilding them will take years and add incremental oil demand. Long-life offshore energy supplies will be needed. The fund said its investment thesis on energy services "has been strengthened in recent months."

Two holdings became takeover targets. easyJet was approached by U.S.-based alternative investment firm Castlelake, which has raised its indicative offer several times. The board said it is inclined to recommend the latest offer to shareholders. The fund highlighted easyJet's fleet of more than 350 A320-family aircraft, its large order book, and highly constrained European airport slots. The company also has a net cash balance sheet after a 2021 rights offering. "None of this will be lost on a potential acquirer," the managers wrote.

Paltac, Japan's largest distributor of health and beauty products, received a tender offer from its parent Medipal Holdings at JPY 6,650 per share, a 40% premium. The fund had owned Paltac since mid-2024 and had flagged the possibility of a takeover in its June 2024 letter. The tender offer is expected to close in early July.

The fund started a new position in thyssenkrupp AG (TYEKF) during the quarter. It exited Ayala Corp. (AYALY) and its long-held position in Compania Sud Americana de Vapores. The thyssenkrupp investment is a bet on a restructuring story. The German industrial conglomerate sold its elevator business in 2020 for €17 billion, appointed a new CEO from outside in 2023, and plans to transition to a financial holding company. It spun off 49% of its submarine and surface vessel unit TKMS in October 2025 and intends to spin off 49% of its Materials Services business by the end of 2026. By 2030, management plans to separate its Steel, Automotive, and Decarbon Technologies segments. The fund said it bought shares "at a deep discount to a conservative estimate of net asset value."

The fund's managers framed the two takeover stories as evidence of a broader theme. "Buying cheap and well-financed companies that own valuable tangible assets offers a variety of benefits," they wrote, including downside protection and an increased probability of "resource conversion" through takeovers. They pointed to other holdings with hard-to-replicate tangible assets: U.S. cement and aggregates assets owned by non-U.S. companies Buzzi and Taiheiyo Cement, offshore energy service fleets at Tidewater, Valaris, and Subsea7, and copper mines at Lundin Mining (LUNMF) and Capstone Copper. The Vicuna copper project in Chile, owned by Lundin, "will represent the world's most important copper development project for the next decade," the managers said.