While most long-only equity funds have struggled in the past decade, Donald Yacktman’s two funds have returned 12.4% and 12.9% per year, respectively. And in a recent interview with The Wall Street Transcript (click here for a PDF) Yacktman and his two co-managers discussed how they’ve been able to do so well during such a tough period.

One part of Yacktman’s approach involves having a more concentrated portfolio than most mutual fund managers. He says his Yacktman Fund typically has about 50% of its assets in its top 10 holdings and cash, while his Yacktman Focused Fund typically has 75% of its assets in its top 10 holdings and cash.

Yacktman’s approach is a conservative one that tends to focus on value and quality. “Ultimately, we think this business boils down to what you buy and what you pay for it,” Yacktman says. “Think of it as trying to be a good shopper. What we do is we’ll calculate a forward rate of return on prospective investments. This is the rate we would expect if we hold the security indefinitely and the multiple we pay for the business does not change much. We look at the cash being generated and the growth rates of the business, and by adding those components together, you get a forward rate of return.”

While he usually keys on high-quality companies, Yacktman says he’s learned to be more flexible. He says he views stocks as a bondholder views bonds. For the stocks of higher-quality businesses, he doesn’t require projected future rates of return to be as high as he would for a lower-quality business. “What I’ve learned over the years is to be more and more flexible because opportunities come from a lot of different areas, and while we have preferences for dominant global businesses with recurring revenues, we seek to be receptive to other opportunities when they present themselves.”

Recently, Yacktman has been keying on a few different areas of the market, including beverage companies (Pepsi and Coca-Cola); media companies (including News Corp.); and medical device-makers. Yacktman says one similarity several of his holdings share is that they generate high returns on assets, and have the ability to continue to do so for a long time.