Aquila's portfolio managers learned about the virtues of low-quality investing while they were overseeing high-yield bond funds, including Aquila Three Peaks High Income ( ATPAX). Searching for promising bonds, the managers noticed that the stocks of some high-yield issuers performed well. That led to the development of a fund focused on stocks from high-yield issuers. In their bond funds, the Aquila managers employ a relatively cautious strategy, looking for the most reliable issuers. The Aquila stock fund follows a similar approach. To limit risk, the Aquila managers look for stocks of companies that are actively working to improve their balance sheets. Many holdings are using their cash flows to pay down debts. "As companies lower their leverage, their credit ratings improve, and the stocks can do better than the market expects," says Aquila portfolio manager Brent Olson. To avoid trouble in downturns, Olson stays away from cyclical businesses, such as automakers, airlines and financials. Such companies can sink hard when the economy turns down. Instead, he favors steady businesses that suffer only minor setbacks in recessions. Holdings include Dish Network ( DISH) and DIRECTV ( DTV), satellite TV providers. Those enjoy steady revenues because customers pay monthly subscriptions, even during hard times. A favorite holding is Berry Plastics Group ( BERY), which makes containers, including plastic bottles for prescription drugs, squeeze tubes for foods and drink cups. "We are fond of packaging companies because they are very stable," says Olson. "In a great year, the sales volume might go up in the mid single digits, and in a bad year the volume goes down in the mid single digits." Another holding is Lions Gate Entertainment ( LGF), a fast-growing producer of movies and TV shows. The company has borrowed to acquire rights to a giant film library and film franchises. Now Lionsgate is aiming to pay down its debt, says Olson.