For the stock portion of his fund, Villere seeks companies that are increasing earnings at annual rates of at least 15%. He prefers to buy when the price-earnings ratio is below the growth rate. A holding is Conn's (CONN), a Texas-based retailer that has been increasing revenue at a 25% annual rate. Focusing on low-income customers, the chain sells appliances, TVs, and bedding. While it faces competition from larger chains such as Sears (SHLD), Conn's achieves strong profit margins by offering credit and charging steep interest rates.
Westwood Income's bond allocation has dropped steadily, falling from 40% in 2008 to 15% now. The fund aims to deliver solid income while limiting risk. To do that, portfolio manager Mark Freeman can hold a variety of assets, including dividend stocks, master limited partnerships (MLPs), and real estate investment trusts. Freeman says that bonds represent some of the worst values in his universe. "Fixed income is the lowest-yielding part of my portfolio," he says.
Freeman likes MLPs, which produce income by owning energy pipelines and other assets. Many MLPs yield more than 5%. Freeman says that pipeline companies can show healthy revenue growth as the U.S. invests to exploit growing shale fields.
Madison Diversified Income keeps half its assets in stocks and the rest in bonds when the managers have a neutral outlook. The fund currently has 58% in equities. While portfolio manager Paul Lefurgey can put up to 10% of his bond holdings in high-yield securities, he only has 1.5% of assets in securities that are rated below-investment grade. "The riskier segments of the bond markets are very aggressively priced," he says.
Madison's stock holdings include rock-solid dividend payers, such as Johnson & Johnson (JNJ) and 3M (MMM). Such solid companies have helped the fund outdo competitors in downturns while delivering solid results in bull markets. At the time of publication the author had no position in any of the stocks mentioned. Follow @StanLuxenberg This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.