Q I hear so many good things about Third Avenue Value Fund. Would you recommend it?
A It requires a hefty $10,000 minimum initial purchase, but you’ll be buying into an investment legend in portfolio manager Marty Whitman.
He finds safe and cheap securities, paying close attention to valuations and how a company is financed. His strong results, understanding of bankruptcies and informative shareholder reports are all commendable.
Through Friday, the $12 billion Third Avenue Value Fund (TAVFX) is up 15 percent over the past 12 months to rank in the upper half of mid-cap growth and value funds. Its three-year annualized return of 17 percent places it in the top 15 percent of its peers.
“We really like the fund and recommend it, though keep in mind that Whitman is getting up there in age and is now in his 80s,” said Karen Dolan, analyst with Morningstar Inc. in Chicago. “It seems as though he’ll do this as long as he can, however, and an eventual transition should go smoothly because of the fine team he’s built.”
Whitman has managed the fund since its 1990 inception. The fund will go wherever he aims it, with distressed debt, stock, bonds and cash included in its portfolio. He’s made many smart calls over the years that have paid off handsomely for the fund’s investors.
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A firm’s balance sheet is a major consideration for him, as he carefully studies the assets and cash on its books. He likes to buy at a discount of at least 20 percent to net asset value. Because Whitman is patient and never pays too much, the fund’s downside is always limited. He is willing to hold a long time, keeping tax efficiency in mind.
Sixty-three percent of Third Avenue Value assets are in financial services, and Whitman recently increased the international holdings in his portfolio. Largest stock holdings include Cheung Kong Holdings Ltd., Toyota Industries Corp., and Henderson Land Development Co.
This “no-load” (no sales charge) fund has a 1.08 percent annual expense ratio.
Q Is there a formula for how much debt is acceptable based on your salary? I’m talking about both long-term and credit card debt. My husband and I disagree on how much is prudent.
A Your debt-to-income ratio gives you and lenders an idea of whether you can meet your payments. But you must examine your comfort level, spending habits and financial goals rather than rely solely on a ratio.
Your monthly payments on unsecured debt such as credit card payments should not be more than 20 percent of your net take-home pay, said Catherine Williams, vice president with Money Management International, a non-profit counseling service in Houston.
She also believes unsecured debt should not exceed your ability to pay it off in three years, since you’ll wind up paying for items you’ve consumed.
“Next there’s the old rule of thumb, which has really come home to roost in this difficult mortgage market, that you should never allow your mortgage payments to represent more than 30 percent of your net take-home pay,” Williams said.
Your combined unsecured debt and mortgage payments therefore should not exceed 50 percent of take-home pay, Williams said.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney@tribune .com.