Interview with Villere & Co. Portfolio Manager Lamar Villere

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Q&As and Interviews

Interview with Villere & Co. Portfolio Manager Lamar Villere

Shauna O'Brien Jan 15, 2015

Insights from Lamar Villere

Lamar Villere: Our prospectus states that under normal market conditions, we will hold at least 25% of the fund in fixed-income securities. Given the rich valuations in fixed income, we have been staying pretty close to that number. We like the flexibility to use our bond allocation as a cash substitute for times when we are having difficulty finding great opportunities in the stock market. Generally speaking, though, we have been hugging our minimum bond allocation. Apple (AAPL) is the largest percentage holding in the fund. How long have you owned the stock and what do you think will be the strategy if the stock becomes an even larger part of your fund? As a second part to this question, how large will you let a position get as far as overall percentage of holdings before you begin to trim the name?

Lamar Villere: We first bought Apple in 2011 when Steve Jobs died. That’s not meant as disrespect to him – it’s more indicative of our style of buying great companies when they fall out of favor with our fellow investors. We do not have a hard and fast rule in regard to how large we let positions get, but as you know we tend to be very concentrated across our equity portfolio so we’re reluctant to have hugely outsized stakes. Our typical stock holding is over 3% of the Villere Balanced Fund – for most of our balanced fund peers, that alone would be a monster position. The Villere Equity Fund (VLEQX) has a bit of a different approach in that the fund makes fewer overall bets (20-30 holdings) so the fund could experience a bit more volatility than other funds. How do you approach this fund’s aim and are you using different metrics than you would normally use to isolate opportunities to invest in?

Lamar Villere: The Villere Equity Fund has almost identical equity holdings to the Villere Balanced Fund, just without the fixed income component. Across our firm, we believe strongly in the philosophy of building concentrated portfolios of only our very best ideas. We seek to find the most attractive companies that have great management teams, low debt, and good growth relative to their valuation. To your point, that absolutely results in more volatility than funds that hold dozens or even hundreds more stocks than we do. If investors want to own hundreds of stocks, we’d suggest that they consider passive funds rather than active funds like ours – if you want your portfolio to look and act like the S&P 500, there’s no point in paying fees for active management. Visa (V) is one of the fund’s bigger holdings and recently reported a dynamite quarter. Do you see the same opportunity in its main competitor Mastercard (MA) and do you tend to avoid holding more than one key leader in a specific category?

Lamar Villere: We think both companies have bright outlooks. Similar to buying Apple when Steve Jobs died, we bought Visa when the Durbin Amendment initially came out and investors dumped the stock. It would be unusual for us to own both leaders in a specific category – it is our style to do a lot of homework, pick the company that we like the best, and go “all in” on that one. We tend to buy only our best ideas and hold them for a long time. We think this lets us know our companies better, and results in lower expenses and taxes relative to higher-turnover strategies. Do you have particular sectors you continue to favor? As well, are there areas of the market you are looking to avoid?

Lamar Villere: We’re more bottom-up stock pickers than sector pickers. We tend to be fairly aggressive, so we have avoided defensive sectors like Utilities and Telecommunication Services, and favor Technology and Consumer. That said, if for some reason we found a great utility stock that we felt was significantly undervalued, we would absolutely give it a hard look. Similarly, if we can’t find any great Technology companies trading at reasonable valuations (much like the situation we found ourselves in in the late 1990s), we’ll steer clear of the sector. What are the main themes investors should pay attention to as we enter 2015?

Lamar Villere: One of the big trends in 2014 has been the weakness in small capitalization stocks relative to large companies’ stocks. As you pointed out, Visa and Apple have been big winners for us over the past year. We would expect to see some of the smaller, more growth-oriented companies in our portfolio hit their strides and get some attention from investors in 2015. We’re also closely watching the price of oil, as it has been a challenging environment for our energy holdings.

The Bottom Line

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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