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Villere: A View on Value
06/29/2015 10:00 am EST
George Young, portfolio manager at Villere & Co., is a long-term value-oriented investor, focusing on just 20 to 25 favorite investments. Here, he explains his investment approach and discusses four top holdings: an auction house, a bank, a food company, and an oil services firm.
Steven Halpern: Our special guest today is George Young, co-portfolio manager of the top performing value fund, Villere Balanced Fund (VILLX). How are you doing today, George?
George Young: Doing great. Thanks for having me.
Steven Halpern: Now, Villere Balanced is a family-owned and operated fund now in its fourth generation. Could you tell our listeners a little about the background of Villere and its overall investment strategy?
George Young: Sure. We were founded in 1911 by my great-grandfather, so now I have my two cousins working with me and my two uncles working here, so certainly a family-run firm.
We’ve operated, I’d like to say, in the same way for the last 100 years, meaning we’re trying to serve investors, seek investments that offer the best value, and to try and make sure we understand what our clients’ objectives are to implement those strategies.
Steven Halpern: One thing that sets your portfolio apart from most others in the industry is its high concentration. In fact, while many funds hold up to 100s of stocks, you focus on just 20 or 25 of your best ideas. Could you explain the importance of that concentration?
George Young: Sure. Well, I recognize that it’s a lot fewer than our peers, but on the other hand, we believe that you really lose the value of diversification once you get past about 15 stocks. Past that you become somewhat of a closet indexer.
Now, on the other hand, what we think is important is that the 25 stocks that we own in our portfolios, we feel that we know them pretty well and we can speak intelligently having met with management and met with others that can give us insights into how the operations work and why they’re better than others.
Steven Halpern: Let’s take a look at some of the stocks in your portfolio currently to help highlight your strategy and one is Kearny (KRNY), a New Jersey bank. What’s the story here?
George Young: Sure. Pronounced Kearny, it’s a play on the continual demutualization of Savings & Loans. The government has carved out a certain niche that’s available to demutualize Savings & Loans and turn them into national banks.
Now, Kearny is a long-time operator and a holder of mortgages in the northeast, primarily in the northern New Jersey area, southern New York area, so they know their area very well.
They continue to originate new loans. It's a play on demutualization. For about $11—where the stock is trading right now—you get something that we think is valued at $12.50-$13, and in due course, we’ll be able to get a dividend, which is allowed under the demutualization rules.
Steven Halpern: Another company on your buy list is Sotheby’s (BID), a well known auction company that’s been around for 200 years or so. What do you like here?
George Young: Right, well, a little different than the Kearny, this is a name that many people are extremely familiar with, and more importantly, they and their competitor—Christie’s—have a duopoly, meaning they own roughly about 90% of the high-end art auction business.
What’s interesting about that particular business is if you are going to buy a Picasso, or a Chagall, or any other type of artwork, you want to know the provenance. These folks have done their research and they understand the background.
Even if you’ve got a difficult period in the economy, there’s always somebody that needs to sell or wants to buy a particular artwork. Inevitably, they go to Christie’s or to Sotheby’s. This is the one public way to play the art market.
Steven Halpern: Another company you like currently is Pinnacle Foods (PF), which is a leading food company. And while many people might not be familiar with the name, they would likely be familiar with products such as Birdseye and Log Cabin or Duncan Hines. Could you tell us a little more about this food company?
George Young: Sure. This is an interesting choice, because this is one that’s done us very well. We’ve owned it for about two years now, and as inevitably happens in a lot of portfolios, whether they’re from our portfolios as institutions, or for individuals, sometimes the stock gets a little bit ahead of itself.
Though we may still like the company and think it has a good chance for growth, it’s time to sell a little bit. Yeah, it’s a great company. Log Cabin syrup, for instance, Birdseye Foods, Duncan Hines cake mixes, a lot of very familiar brands.
They’ve done a great job at consolidating these brands and to wring any inefficiencies out of them. We still like the company, although, I have to admit, we did sell a little bit recently, but that’s the natural course of events for any portfolio.
Steven Halpern: Finally, let’s look at a company that might be a bit of contrarian idea and that’s Oceaneering International (OII), an oil services firm that’s well known for its deep water operations. Could you share your thoughts on this stock?
George Young: Sure. There are a couple things. First of all, you are exactly right. It is a contrarian idea, but anything to do with oil right now, people shy away from.
Investors say, "Gee, oil has taken such a big drop, it would be difficult to put my money into anything having to do with oil whatsoever."
But therein lies the rub, because, of course investors want to buy on the cheap and hopefully sell at a high. This is a way to kind of play it both ways, because regardless of whether oil is at a high or a low, oil is going to continue to be consumed one way or the other and that means that any of the infrastructure plays still have some validity.
Here, these guys specialize in remote operated vehicles (ROVs). That means that any subsea work has to be done in a very difficult technical way, in a very harsh operating environment. They go thousands of feet below the sea, use these ROVs, as they are called, to repair and maintain the rigs and pipelines.
Steven Halpern: In terms of time horizon, are these all ideas that you are comfortable holding as a long-term investor?
George Young: Yes. We are, by definition, long-term investors, so we don’t generally buy cyclical stocks. We buy stocks that we can hold for the long-term, reap dividends, and then hopefully defer paying capital gains until such time as the company is bought out or we decide it becomes a little bit overvalued.
Our turnover is pretty low. It’s about 20% per year. It’s the sort of thing where this is the only way we’ll buy stocks, is when we think we see something that can withstand the test of time.
Again, stocks don’t necessarily make money overnight. This is not like going to the casino, so you have to have a good degree of patience to be called an investor as opposed to a gambler.
Steven Halpern: Again, our guest is value investing expert, George Young, co-portfolio manager of the Villere Balanced Fund. Thank you for joining us today.
George Young: Great. Thank you very much.
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