We sat down with George Young, partner at St. Denis J. Villere & Co. LLC in New Orleans, which manages the Villere Balanced Fund (VILLX) and the Villere Equity Fund (VLEQX). We discussed the growth potential to be found in small- and mid-cap stocks and the importance of trust in choosing a financial advisor.
DF: So George, to get started, I think our readers would like to hear a bit about the history of Villere & Co.
GY: Of course. Villere & Co. is a family business that began in 1911 in New Orleans. We're now in our fourth generation, but we've undergone some pretty significant changes in the past few years. For most of our history we were a broker-dealer and investment advisor. We dropped the broker dealer in 1994, and in 1999 we started the Villere Balanced Fund (VILLX) to provide investors with more modest accounts an option for a portfolio focusing on small- and mid-cap stocks.
The Balanced Fund is a relatively concentrated portfolio, with around 20 equity holdings making up 70 percent of the total. The rest is in fixed-income holdings, including a dose of corporate junk bonds to add a bit of juice. The benefit of concentration is that you can see good returns during some periods, but the drawback, of course, is that if you go through a rough patch, you feel it. For example, the decline in oil prices hurt us this past year.
DF: Could you expand a bit on your investment strategy?
GY: We're bottom-up investors. We focus on growth, which is why we primarily go for small- to mid-cap companies. That affords you a lot more opportunity to meet with management, to see the company's offices and facilities, and to get a better grasp of what it is you're investing in. That sort of transparency is important for us, given that we're a small operation and depend on outside analysts.
That's not to say we don't invest in large-cap stocks. We hold Apple (AAPL), for example, as well as Visa (V). But one drawback with large-caps is that their markets are often saturated. Who hasn't heard of Coca-Cola (KO)? Where are they going to expand to?
People have a tendency to become attached to companies. An old phrase about IBM (IBM) sums it up nicely: buy their stock and you'll go broke with dignity. I think that could just as easily apply to Exxon (XOM). You should never love a stock, because it will never love you back. Even if your grandmother gave it to you, it's not an heirloom, it's an investment.
We also don't allow ourselves to be dragged along by cyclical trends. For example, we don't hold any utilities, and yet it was the best performing major sector in the S&P 500 (SPX). Missed gains like that can lead to pressure from clients, but if we were to buy in now, chances are good we'd be buying into a stagnant or declining sector only to miss gains elsewhere. There are cycles in popularity which you can't always anticipate, so we aim to buy and hold for the long term. It's important to earn your clients' trust and communicate your strategy, so they know they're not missing out on short-term opportunities for no reason.
As for the year ahead, we're optimistic, because while we've seen a bull market in large-cap stocks, small- and mid-caps have largely been left behind. That's not usually the case, so there's reason to believe they could follow suit.
DF: Could you talk a little bit about the Villere Equity Fund (VLEQX)?
GY: Sure. The Balanced Fund has a significant portion invested in bonds, and while that's a good strategy for diversification, it doesn't make sense for younger investors. When you have 10-year government bond yields basically matching inflation, you need to look to equities for higher returns. There's a saying that buying bonds is like picking up dimes in front of a steamroller. While that's been wrong for three years now, we wanted to offer our clients an option that was entirely invested in stocks.
So we introduced the Equity Fund, which has 80 percent overlap with the Balanced Fund, but is designed to achieve more aggressive growth.
DF: Could you talk about a couple of the holdings you particularly like in the Equity Fund?
GY: Sure. One that not everyone is familiar with is Leggett & Platt (LEG). They're in the bedding business and based in Carthage, Missouri. In fact they hold the original patent for box springs. Their dividend yield is at 2.73 percent, and shares were up 45 percent in the past year.
Another is Financial Engines (FNGN). It's essentially a play on people continuing to fund 401(k)s. A fiduciary—say it's Ford or GM—isn't going to give an employee investment advice, so up until now you've been stuck asking your neighbor, your friend, a family member. Bill Sharpe, who won the Nobel Prize in Economics in 1990 and invented the Sharpe ratio to assess the performance of a portfolio adjusted for risk, founded Financial Engines to fill that gap. The company went public in 2010 and now manages $100 billion in assets.
DF: Thanks so much, George. One last question. You mentioned younger investors earlier. Since that's exactly who a lot of our readers and users are, could you speak for a second about a good first step for investors who are just starting out?
GY: Of course. I think the first step is to open a Roth IRA. It's the logical vehicle for younger investors in that it can save you a lot in taxes down the road. It also offers you flexibility: you can withdraw funds to buy a house or for education without the same penalties you'd pay with a Traditional IRA.
And then, of course, there's always the Villere Equity Fund (VLEQX).
This article is a loose reconstruction of an interview conducted by Kapitall Wire. The information contained in the article is not guaranteed as to its accuracy or completeness. This material should not be considered an offer for any of the securities referenced. Kapitall Wire has produced all of the stock charts, stock lists and stock-specific information contained in this article, and these have not been provided by or endorsed by the Villere Equity Fund or the Villere Balanced Fund.
Click on the interactive chart to view data over time.
1. Apple Inc. (AAPL, Earnings, Analysts, Financials): 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 $742.66B, most recent closing price at $127.50.
Apple is the fund’s second largest holding, with 5.42 percent portfolio weight and 18,545 shares owned.
DST Systems is the fund’s fifth largest holding, at 4.89 percent portfolio weight and 20,900 shares owned.
Euronet Worldwide is the fund’s largest holding, at 6.58 percent portfolio weight and 52,900 shares owned.
4. Pool Corp. (POOL, Earnings, Analysts, Financials): Operates as a wholesale distributor of swimming pool supplies, equipment, and related leisure products in North America and Europe. Market cap at $3.04B, most recent closing price at $69.78.
Pool is the fund’s fourth largest holding, at 4.98 percent portfolio weight and 32,700 shares owned.
Visa is the fund’s third largest holding, at 5.20 percent portfolio weight and 8,700 shares owned.
(List compiled by David Floyd. Monthly returns data sourced from Zacks Investment Research. Portfolio holdings data sourced from Morningstar. All other data sourced from FINVIZ.)
Analyze These Ideas: Getting Started
- Read descriptions for all companies mentioned
- Access a performance overview for all stocks in the list
- Compare analyst ratings for the companies mentioned
- Compare analyst ratings to annual returns for stocks mentioned
- Real-Time Opinion: Scan the latest tweets about these companies (feed will open in a new window)
Dig Deeper: Access Company Snapshots, Charts, Filings
- Apple Inc.(AAPL, Chart, Download SEC Filings)
- DST Systems Inc.(DST, Chart, Download SEC Filings)
- Euronet Worldwide Inc.(EEFT, Chart, Download SEC Filings)
- Pool Corp.(POOL, Chart, Download SEC Filings)
- Visa Inc.(V, Chart, Download SEC Filings)
© Kapitall, Inc. All rights reserved. Kapitall Wire is a division of Kapitall, Inc. Kapitall Generation, LLC is a wholly owned subsidiary of Kapitall, Inc.
Kapitall Wire offers free cutting edge investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by Kapitall Inc., and its affiliate companies.
Open a free account today get access to virtual cash portfolios, cutting-edge tools, stock market insights, and a live brokerage platform through our affiliated company, Kapitall Generation, LLC.