Third Avenue Bets on Maximus: AI Fears Mask a Bargain

Third Avenue Small-Cap Value Fund returned 12.85% in the second quarter of 2026, beating the MSCI USA Small Cap Value Index at 12.61% but trailing the Russell 2000 Value Index at 17.19%. In its Q2 investor letter, the fund disclosed a new position in Maximus, Inc. (NYSE:MMS), arguing that the beaten-down government services company offers an attractive entry point.

Maximus closed at $55.97 per share on September 21, 2026, according to the letter's accompanying data. The stock has declined 4.37% over the past month and 36.07% over the past year. The company carries a market capitalization of $2.93 billion, with shares trading within a 52-week range of $52.73 to $100.00.

A Technology-Forward Contractor at a Discount

Third Avenue's letter frames Maximus, headquartered in McLean, Virginia, as far more than a conventional consultant. "Over its fifty-year history grown to be one of the twenty largest government contractors, either public or private," the fund wrote. "This technology-forward consultant designs, owns and maintains the software stack for government entities, notably the IRS, the SEC's EDGAR filings database and real-time referencing of the TSA's 'no fly' list, to name a few."

The fund attributes the share price collapse not to operations but to narrative. Despite Maximus' federal business revenue growing more than 8% in 2025, what the letter calls "pessimism related the D.O.G.E. narratives have been unforgiving for Maximus' share price, as well as the broader government consulting industry." The letter adds that "lapses in government funding and generalized fear of artificial intelligence disintermediation" have further clouded perception of the stock in 2026.

Why Third Avenue Sees Upside

The investment case rests on three pillars laid out in the letter. First, the fund finds "an absence of evidence of any operational impact related to the above-mentioned fears." Second, "management's recent operational guidance and very substantial share buyback authorization both inspire confidence." Third, and perhaps counterintuitively given the AI-disintermediation fears, Maximus' management expects operating margins to expand in 2026 because of its own internal use of artificial intelligence.

The letter points to Maximus' Veterans Affairs benefits administration business as proof. Maximus receives medical records from benefits providers in a wide array of hard copy and digital file formats. The company has built what the fund describes as "a unique capability to harmonize unstructured data into uniform entries and now processes ten million pages of medical records every day in the Amazon cloud."

The efficiency gains are direct. "Improving technological capabilities allows Maximus to process faster and more accurately, resulting in significantly reduced headcount and cost," the letter states. In other words, the same AI wave investors fear will disintermediate government contractors is, in Third Avenue's telling, a margin driver inside Maximus.

Fund Context

The Maximus position fits the fund's broader positioning. Third Avenue reported that Q2 performance benefited from diversified sources despite challenges in sectors such as offshore energy services. The fund's high-conviction approach balances concentration and diversification, focusing on undervaluation and quality for downside protection.

Year-to-date through Q2, the fund has returned 21.72%, against 15.91% for the MSCI USA Small Cap Value Index and 22.99% for the Russell 2000 Value Index. Over three and five years, annualized returns stand at 17.76% and 12.37%, respectively.

The letter notes that the fund lagged indices like the Russell 2000, which saw significant momentum in technology, particularly semiconductors. It also observes that U.S. small-cap stocks have recently outperformed large caps, signaling a shift in market dynamics. Third Avenue says it is positioned to capitalize on opportunities from recent volatility and potential consolidation in the small-cap space — a backdrop that could prove favorable for a fund buying a 36%-off government IT contractor with a large buyback behind it.