7 Top Holdings of Mutual Fund Legend Marty Whitman

Includes: BAM, BK, CVA, FCE.A, NBR, PKX, TRC
by: The Keating Letter

Marty Whitman is the founder of Third Avenue Management and the co-portfolio manager, along with Ian Lapey, of the Third Avenue Value Fund. He’s authored three books, the most famous being “The Aggressive Conservative Investor.” Whitman also is an adjunct faculty member at the Yale School of Management. He’s known as one of the most successful distressed debt investors of this era.

Third Avenue has five mutual funds. I’ll focus on holdings from the Third Avenue Value Fund, which Whitman has managed or co-managed since 1990. Third Avenue Value has about $4.5 billion in assets and has returned 13.9% in 2010 and 44.5% in 2009 after a difficult 2008 where they lost 45.6%. Eight of the fund’s top 15 holdings are in stocks that aren’t easily purchased by retail investors. As Lapey mentioned in his most recent review (pdf) on April 30, 2011, 43% of the portfolio is invested in Hong Kong-based common stocks. These are companies like Cheung Kong Holdings (OTCPK:CHEUY), which makes up more than 13% of the portfolio, and Hang Lung Group (OTCPK:HNLGY), which makes up a comparable size of the portfolio as well.

The following seven holdings trade in the U.S. Although the U.S. positions aren’t as cumulatively large as the Hong Kong positions, they are still significant investments.

Posco (NYSE:PKX): Whitman has held this $33 billion market cap South Korean steel company for at least the last five years. Shares trade above $106 and yield 3.2%. Posco makes up about 8.5% of the portfolio.

Nabors Industries (NYSE:NBR): Whitman also has held Nabors for a significant number of years. In fact, Whitman retired from the Nabors’ Board earlier this year after serving as a director since 1991. A comment from Gene Isenberg, Nabors' Chairman and CEO, provides some background information on Whitman’s history with Nabors, "He was the driving force in creating Nabors from its predecessor, Anglo Energy, following Anglo's emergence from bankruptcy in late 1986. Marty identified the Anglo opportunity and led a group that purchased, directly from the creditors, a portion of Anglo's distressed debt and a majority position in its equity, which was soon recapitalized into Nabors. Since that time, his vision and guidance, particularly in the areas of capital structure, financial oversight and risk management have been instrumental in the 140-fold increase in Nabors' enterprise value.” This holding makes up about 6.5% of Whitman’s portfolio, though he has been selling shares in 2011.

Brookfield Asset Management (NYSE:BAM): Brookfield is a $20 billion market cap property, power, and infrastructure asset manager with $150 billion under management. Whitman has been trimming his position in 2011, though it still makes up approximately 5.3% of his portfolio.

Bank of New York Mellon (NYSE:BK): Bank of New York Mellon makes up about 3.8% of the portfolio. Like the other picks, this has been a long time holding for the Value Fund. The bank reported solid Q2 earnings on Tuesday, with 15% year-over-year (YoY) revenue growth and a strong capital position. This has been one of the strongest and best-run financials through the crisis.

Forest City Enterprises (NYSE:FCE.A): Whitman has been trimming his stake in Forest City this year, though it still makes up about 3.7% of his portfolio. Forest City owns and operates residential, office, and retail properties, and buys and sells raw land. It has a $3 billion market cap and is pushing up on 52 week highs.

Covanta Holdings (NYSE:CVA): Covanta is an interesting holding company that operates in two segments: Covanta Energy, which converts solid waste into energy, and National American Insurance Company of California, which specializes in non-standard private passenger automobile insurance and specialty contract and commercial surety bonds. Like Nabors, Whitman was instrumental in the resurrection of Covanta as well. He had bought into the debt of its predecessor in 1986. That $17 million investment is now worth more than $150 million. Covanta currently makes up 3.3% of Whitman’s portfolio.

Tejon Ranch (NYSE:TRC): Tejon Ranch makes up about 2.7% of Whitman’s portfolio. For some good background information, Ben Strubel was interviewed about the stock last year, "Just One Stock: Good Cash, Low Debt Mark a Different Kind of Developer." Michael Winer, the co-portfolio manager of the Third Avenue Real Estate Value Fund, sits on Tejon Ranch’s Board. Across all the Third Avenue funds, the firm owns 26% of Tejon Ranch. Michael Price, who I profiled earlier this month, also owns just under 2% of the company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.