A top-1% fund manager over the past 3 years highlights a ‘once-in-a-generation’ opportunity in an underrated part of the market — and shares 10 stocks to buy now

• Through all the wild market swings of the past five years, Matthew Fine’s fund has risen.
• Focusing on small caps and international companies has led to his outperformance.
• Here are 10 top stocks worth investing in right now, in Fine’s view.

Leading fund manager Matthew Fine has outperformed by tuning out the noise in markets.

The 23-year market veteran has guided the Third Avenue Value Fund (TAVFX) to positive returns for five straight years, including a top-1% finish in 2022, according to Morningstar. And in the past three years, he’s bested 99% of his peers in the global small- to mid-cap category.

Although Fine focuses on his carefully crafted investing strategy instead of predicting what will happen to stocks and the economy, he can’t help but be surprised by how 2023 has unfolded so far. After the S&P 500’s worst year since 2008, the index is on pace for another positive year and commands a historically rich earnings multiple — even though its profits have fallen.

Stocks stumbled in early August, and some strategists warn the weakness is only beginning. While Fine isn’t a trader, he said in a recent interview with Insider that investors should diversify away from large US growth stocks — especially if this is, in fact, an extended bear-market rally.

“Every major correction in US equity markets that we’ve experienced over many, many decades — and I’m talking about 80, 90, 100 years — has major rallies,” Fine told Insider.

The fund manager continued: “When the TMT (technology, media, and telecommunications) bubble burst from March of 2000 over 30 months, the Nasdaq ended up being down about 80% but had several rallies in it, 30% or stronger. So this happens all the time — that’s just the fact of the matter. So on that level, it’s not surprising at all.”

Small caps can springboard higher after a dismal stretch

In the past decade, shares of large-cap companies have left their smaller peers in the dust, which Fine noted has resulted in a startlingly large valuation gap between the two groups.

“I try not to make hyperbolic statements very often, but it really does look [like] a once-in-a-generation type of distortion to me,” Fine said of small caps.

He added: “The valuation of US small caps in aggregate is so far disconnected from large capitalization companies that it’s incredibly difficult for me to believe that if you take a three- to five-year view, that the prospects for small caps are not materially better than for large caps.”

A valuation gap this big between large and small firms only appears every few decades, Fine said. In a mid-year letter to shareholders, he wrote that the difference in price-to-earnings (P/E) ratios of the S&P 500 and the small-cap-focused S&P 600 indexes is the largest it’s been since the early 2000s. What followed was a dominant stretch for small caps, the fund manager said.

10 top stocks to buy now

Besides small caps, Fine said he’s now especially bullish on stocks in international markets.

“We’re seeing far more opportunities outside of the United States that we believe to be materially undervalued than we are seeing in the United States,” Fine said.

Companies that have caught the fund manager’s attention include those tied to commodities, European banks, and Japanese equities, which are experiencing a long-awaited revival. He estimated that 70% of his fund is in foreign stocks versus 20% in US names and 10% in cash.

Below are 10 of Fine’s favorite stocks to buy now along with the ticker, market capitalization, P/E ratio, and thesis for each. A separate list of his fund’s top holdings is available on its website.