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MUTUAL FUNDS | Mutual Fund Matters
800 per cent in the past decade
since December 2002.
“We may buy something we really
love and really get to understand its
patterns,” White says. “We get to
know the management.We may trim
or buy more. But we find a company
that fits the bill and Rush has
worked out well for us.”
At Villere, top 10 holdings include
Apple and 3D Systems but also Con -
stant Contact, Flowers Foods and ION
Geophysical. The top five sector allocations
include retail (15.6 percent),
oil and gas extraction (14.9 percent),
food manufacturing (13 percent) and
miscellaneous manufacturing (12.8
percent).
Young says they’re not always
looking for today’s top performing
stocks. Instead, they’re looking for
com panies that have more potential
for growth.
Both of these funds also vary from
other balanced funds when it comes
to bonds. Greenspring focuses on
short-duration, high-yield holdings,
while White says Villere isn’t just
trying to preserve capital but “actu -
ally make money on the bond side.”
With a bearish outlook for bonds
once interest rates start to rise,
White believes in holding short-term
bonds.
A few of Greenspring Fund’s top
10 holdings are j2 Global, PartnerRe,
RadioShack Corp. 2.5 percent convertible
bonds, Republic Services
and Rosetta Re sources.
Young says Villere isn’t making
any groundbreaking changes, but
rather returning to an old way. He
says investors and many fund managers
have recently made investing
unnecessarily complicated and complex
with derivatives, exotic private
placements and investing in com -
panies that no one can really understand.Villere
sat out of Internet stocks
during the tech boom because the
fund knew something wasn’t right
about their valuations and share
price explosions.
“I would say what we do is more
of a return to the past,” George
Young says. “We knew a lot of those
companies were vastly overvalued
and hyped. You couldn’t find a real
price-earnings ratio to get the basic
valuations down. We buy things we
can understand and that we think
are undervalued.”
Smaller Funds With Big
Advantages
Many of these nontraditional balanced
funds tend to be smaller with
less than $1 billion in total net
assets. They usually have smaller
management staffs, which provides
an advantage because they can
move quickly and are unencumbered
by committees and various
levels of decision-making.
Although these funds don’t trade
frequently (Villere has a turnover
ratio of 12 percent), they can make
fast decisions when needed.
“We have a meeting, make some
decisions and can execute it that
day,” Young says. “We’re not hamstrung
by committees or that sort of
thing. It’s just the four of us.”
At Greenspring, White says the
fund’s small size lets it take on “meaningful”
positions in small companies.
Shareholder size is a “weapon,” he
says, that gives the fund flexibility to
consider unique opportunities and
take on companies that have lower
trading volumes.
Of course, such approaches can
come with downsides that might
differ from that of a traditional
balanced fund. Young says investors
should expect a little more volatility
that inevitably comes with smalland
mid-cap stocks.
Because Greenspring doesn’t follow
the herd, White says, it’s also
not going to keep up with other
funds in bull markets. Sticking to
their guns, it doesn’t capitalize on
quick hyped trends, but White says
the flipside to that is that the fund
outperforms in bear markets.
Even investors who have a longterm
vision sometimes can’t get over
the fear that they’re missing out by
not capitalizing on the current flavor
of the day.
“We stick to our knitting and
don’t change our stripes,” White
says. “It’s neat when you’re different
in 2008, but it’s tough when you’re
different in 2010. We don’t put anything
in our portfolio that isn’t significant,
meaningful and in line with
our philo sophy.”
Looking for Return
Because these funds relish the advantage
of their smaller size, they also
put more emphasis on return and
money management as opposed to
marketing for new capital.
Both funds’ average annual re turns
over the past 10 years show their
methods may work. Green spring has
returned 8.9 percent and Villere has
returned 10 percent annually over
the past decade. That compares with
the 8 percent for the Standard &
Poor’s 500 index.
“We’re not trying to be an $8 billion
fund,” White says. “We really don't
go out and market ourselves. We just
try to find people whose investment
philosophy lines up with ours.”
44 | BetterInvesting | March 2013