The Russell 2000 has lagged the S&P 500 in the recent market rally and is still down year-to-date, but small-cap stocks may be the safer bet for investors in a higher interest rate environment.
Lamar Villere, co-manager of the Morningstar 4-star rated Villere Balanced Fund, tells CNBC's "Power Lunch" on Tuesday he's bullish on small-caps.
Read MoreStocks mostly lower; Apple falls 3%
"Generally, small-caps have [a] better opportunity for growth and less currency risk than large-caps, less interest rate risk (when Fed raises, stocks that trade on dividends will get hit); also, strong balance sheets are safer from rate fluctuations," Villere said.
He is looking at 'small-cap blue chips' that can succeed without China or Europe growth.
Villere likes Flower Foods and Howard Hughes Corp.
Flower Foods is flat during trading, while Howard Hughes is up 4 percent.