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Villere Balanced Fund portfolio manager on why he's looking at value oriented stocks

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George Young, Portfolio Manager at the Villere Balanced Fund, joined The Final Round to discuss his firm's investing strategy and why he's watching value-oriented stocks like First Hawaiian.

Video Transcript

MYLES UDLAND: Well, how are you making sense of what we've seen not just in the last three months, but really just in the last couple of weeks?

GEORGE YOUNG: Well, you're right. The last couple weeks have been tumultuous. And I think the important thing for people remember, as investors, you've got to be patient. And you've got to also remember there's always a sector rotation going on the market. So what was popular today, it's not necessarily popular tomorrow.

So you've got to look at the ones that are kind of down and out and that are out of favor. There's a great expression-- stocks are seldom cheap and popular at the same time. It's something that my grandfather said. This is a family-run firm. And I think there's a lot of truth to that.

So when things are really popular-- and I'm a pick on the Fang stocks as one of your earlier speakers did. They are overvalued. They've been very popular. The growth sector of the market has done incredibly well so far this year. The value sector, not as well. We're more value-oriented. And I think with a bit of patience, you'll see the sector rotation and value. And those metrics will out over time.

MYLES UDLAND: Well, and let's talk a bit about the value rotation, because in periods where value does outperform, history suggests they're quite violent and they're quite brief. And so, how are you positioning or maybe anticipating, you know, the length or the moment at which we can really see that change in character and kind of realize when can we realize it's not going to be just a couple of days correction, perhaps?

GEORGE YOUNG: Right, good question. I have to also say I agree with earlier speaker where we're having a little bit of a tough time finding the right stocks, meaning we've got about 15% cash for our clients right now. We just feel that, you know, the market's come up so quickly just as it came down so quickly in March and April.

A lot of volatility in the market, both abhors a vacuum and abhors volatility. And we've seen tons of that. And we've seen that just in the last five or six trading sessions, for instance. This has been a sloppy week post-Labor Day.

Everybody's looking for a cure. Everybody's looking for a resolution in November one way or the other. Everybody's looking to get unemployment reduced so that we have a fuller employment sector out there. There's a lot of unknowns. And so the question is why can this market be doing so well when you've got the underpinnings that seems so shaky?

So there is some skepticism, and I agree with that. But at the end of the day, you have to buy stocks that are out of favor. And that's what we're looking for is more value-oriented stocks. I think that's where the opportunity is. It's also where dividends are. Let's not forget about dividends, which are tried and true of time that delivers a lot of your total return.

MYLES UDLAND: Well, and thinking about that 15% cash, right now, are their names that you own that you maybe like to put more money into should the valuation come down? Or do you think you're prospecting for new positions at this point?

GEORGE YOUNG: Well, we're always looking for new positions. We meet on a regular basis. And that's what we're paid to do. However, there are some that seem to be more enthusiastic about it the moment or our firm Villere seems to be more enthusiastic about it the moment. And those are names like First Hawaiian, which is the second oldest bank west of the Mississippi.

They've been business for over 100 years. They have a proven management. They were part of Bankwest previously. But the management had been the same all the way through. They sell it just a bit over book value-- tangible book value-- about 30% primo over that. They have a 6% dividend, which I think is secure.

They are dependent on tourism, which, like everywhere, is hurting right now. But at some point, you'd be able to go back to why you won't have to worry about the two-week quarantine. And don't forget they've got defense spending that they're banking on. And that's been a tried and true opportunity for many years in Hawaii. So we think well-run bank, low charge offs. That's a great name that I think everybody should owe.