George Young, Portfolio Manager of the five-star Villere Balanced Fund, keeps his portfolio tight at all times.
At no point are there any more than 20 stocks under management, and they're periodically rebalanced to hold equal weight. For the most part, he knows the firms' board members and management teams by name, he visits headquarters and factory floors, and keeps his turnover low.
This "stick with what you know" approach seems to work. His stock-picking strategies (outlined below) have ranked the fund in the top 1% over 3, 5 and 10 years in its category. He holds roughly $1.8 billion in assets under management.
In an interview with Kapitall Wire, Young outlined the criteria for stocks in his portfolio:
- Value: A low PEG ratio
- Low debt: Leverage should be lower than its industry average.
- High trading volume: Average volume above 100,000 shares per day.
- Durability: "We're bottom up stock pickers, we like stocks that we think will perform well in any economic environment."
- Solid management: Young and his team frequently visit and maintain dialogue with management to affirm that they know what they're doing. Smaller companies provide easier access.
- U.S. firms: "We only buy what we know. When you get into foreign companies it's not necessarily a level playing field in terms of accounting rules, and SEC oversight." He adds that foreign companies put U.S. investors at risk of currency issues and cultural misunderstanding.
To avoid high tax rates, The Villere Fund tries to hold the shares for at least one year. Young says this is typically the case anyway, because he buys into companies that he believes are undervalued and it may take some time for the stock price to come around to its fair value.
Lastly, the fund enjoys a good contrarian play. "It may take a while for the thesis to come into play," he says, but there are solid opportunities when the headlines turn negative for firms in stable or growing industries.
Most recent sale: O'Reilly Automotive
Advice for new investors
When only maintaining a portfolio of 20 names at a time, Young knows the value of letting go when the time is right -- something investors often struggle with.
"I don't understand when people say 'don't sell my shares of xyz' because it has some sentimental value to them. You can love a stock, but it's not going to love you back." Indeed, as any seasoned investor would say, emotions have no place in an investment strategy.
Young adds: "Don't be a gambler. Do your research ahead of time and plan to hold onto it for a while."
Business section: Investing ideas
Looking to emulate Villere's investment strategy? What better starting point than his own top holdings?
Here's a list of the top 10 holdings as of May 31, 2012. When purchased, each stock represents 5% of the total fund portfolio. Current variations are due to changing stock price and have yet to be rebalanced.
(Click here to access free, interactive tools to analyze these ideas.)
1. 3-D Systems: Engages in the design, development, manufacture, marketing, and servicing of 3-D printers and related products, print materials, and services. Market cap at $1.59B, most recent closing price at $31.19. Percent of fund holdings: 7.4%.
2. ION Geophysical
3. Apple: Designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. Market cap at $542.63B, most recent closing price at $580.32. Percent of fund holdings: 3.4%.
4. Flowers Foods
5. Constant Contact: Provides on-demand email marketing, social media marketing, event marketing, and online survey solutions primarily in the United States. Market cap at $608.2M, most recent closing price at $20.0. Percent of fund holdings: 3.3%.
6. Corn Products International: Together with its subsidiaries, manufactures and sells various ingredients to food and industrial customers in North America, South America, Asia, Africa, and Europe. Market cap at $3.82B, most recent closing price at $50.05. Percent of fund holdings: 3.2%.
7. Varian Medical Systems: Designs, manufactures, sells, and services equipment and software products for treating cancer; and x-ray products worldwide. Market cap at $6.63B, most recent closing price at $59.47. Percent of fund holdings: 3.1%.
8. The J. M. Smucker Company: Engages in the manufacture and marketing of branded food products in the United States and internationally. Market cap at $8.49B, most recent closing price at $75.75. Percent of fund holdings: 3.1%.
9. Northern Oil and Gas,
10. BE Aerospace: Engages in the design, manufacture, sale, and service of commercial aircraft and business jet cabin interior products worldwide. Market cap at $4.4B, most recent closing price at $42.37. Percent of fund holdings: 3%.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Interview on June 6, 2012.