Martin Whitman‘s Third Avenue Management LLC has recently submitted its 13F filing with the SEC for the quarterly period ended March 31. The filing indicates that the firm’s public equity portfolio held a value of $3.99 billion. Third Avenue is a large investment fund that has interests in diverse companies, with its stakes spread across several industries, though mainly in financial and industrial goods. Unlike some hedge funds that identify specific stocks and make huge investments in them, Third Avenue uses a strategy that widely spreads its risks and chooses “safe” stocks using a deep bottom-up approach. Its top ten holdings represent only 38.03% of its total equity portfolio value. Whitman founded the hedge fund back in 1990 and it now has more than $10 billion in assets under management (AUM). It is however important to note that the firm has seen its AUM shrink heavily in value from a peak of $26 billion in 2006. We have taken a keen interest in the fund and have analyzed its top three small-cap picks for the quarter, First Industrial Realty Trust, Inc. (NYSE:FR), White Mountains Insurance Group Ltd (NYSE:WTM), and Equity Commonwealth (NYSE:EQC).
The top small-cap picks of Whitman are notable to us given the fact that it’s investors like him who add great value to our small-cap strategy system, as they are heavily invested in the success of their small-cap picks and have poured considerable resources into identifying undervalued or under-the-radar companies to invest in. We have found that collectively, hedge funds’ top small-cap picks provide a great investment opportunity, with our strategy having returned over 144% since it was launched at the end of August 2012, beating the market by nearly 85 percentage points (see the details).
Let’s first consider First Industrial Realty Trust, Inc. (NYSE:FR) in which Third Avenue held a total of 5.47 million shares with a market value of $117.29 million. The real estate investment trust (REIT) recently released its results for the first quarter, posting $0.31 in earnings per share (EPS), similar to estimates released earlier by Thomson Reuters. The company is expected to pay a quarterly dividend of $0.1275 per share to investors of record as of June 30th, providing a dividend yield of 2.63%. Although a number of analysts, including those at Zacks, have downgraded the shares of First Industrial Realty Trust, Inc. (NYSE:FR), it’s expected to have a slight improvement in earnings per share for the current quarter and has been given a one-year price target of $23.40, showing potential upside of over 20%. 13 hedge funds we track had positions in the stock as of March 31, with an aggregate investment of $188.32 million. Some of these hedge funds are Force Capital, and Decade Capital Management, a Millennium Management Subsidiary.