A new Bloomberg article takes a look at First Pacific Advisors’ Bob Rodriguez, offering some insights into the strategy of the fund manager whose 15% average annual return over the past 25 years ranks #1 among diversified U.S. equity funds (according to Morningstar).

Among the key parts of Rodriguez’s strategy, writes Bloomberg’s Charles Stein:

• He focuses on two or three industries at a given time;
• He looks for firms with market values between $1 billion and $4 billion;
• He makes sure those firms are trading at what he considers “bargain” prices;
• If he can’t find enough stocks that meet those criteria, he holds cash. (Since 1998, Rodriguez’s FPA Capital Fund has had an average cash position of 30%, far greater than the average mutual fund).

The conservative strategy and willingness to hold cash if he can’t find enough attractive stocks helped Rodriguez avoid much of the Internet bubble earlier this decade, and the credit crisis-related plunge more recently, Stein writes. (Rodriguez warned of both crises in advance.)

Rodriguez hasn’t bough any stock since March, “anticipating that equity markets may take as long as a decade to reach the previous highs,” and that economic growth will remain below average for the foreseeable future, Stein writes. His portfolio had about 40% of its assets in energy stocks at the end of September, Stein says, reflecting his belief in a concentrated approach. Rodriguez says that in college, he heard the great Charles Munger espouse such a belief: “He called diversification the hobgoblin of small minds with little confidence,” Rodriguez said.