Third Avenue Real Estate Value Fund Q2 2026 Letter

Third Avenue Value Fund delivered modest absolute returns but faced headwinds in relative performance during the second quarter of 2026. The Fund generated a 1.25% return for the three months ended June 30, substantially trailing broad equity benchmarks. While year-to-date returns of 8.63% represent solid absolute performance, this figure lags both the MSCI World Index (9.69%) and MSCI World Value Index (10.50%), indicating that the Fund's value-oriented strategy struggled to keep pace during the first half of 2026.

The Fund's underperformance reflects a pronounced market rotation toward technology, particularly semiconductor manufacturers and companies perceived as AI developers. During Q2 2026, the Philadelphia Semiconductor Index returned an exceptional 87.98%, while the NASDAQ 100 advanced 27.73%. This concentrated strength in speculative technology plays directly conflicted with the Fund's disciplined investment approach, which targets out-of-favor, temporarily depressed segments of global equity markets. The Fund's strategic positioning—heavily weighted toward non-U.S. equities and tangible asset investments—proved disadvantageous during a quarter dominated by U.S.-listed technology leadership.

Management noted reasonable satisfaction with absolute performance in the first half of 2026, particularly following a strong first quarter, though acknowledging that relative returns have trailed broad global equity indices. The Fund's longer-term track record remains robust, with three-year and five-year annualized returns of 15.35% and 14.68% respectively, suggesting that the current quarterly underperformance may reflect temporary market dislocations rather than structural fund weaknesses. The Fund's commitment to its value discipline and non-U.S. positioning signals management's conviction that current market dynamics favoring concentrated technology exposure present potential opportunities for value investors with a longer investment horizon.