The Independent Investor: Jensen Portfolio — Quality Fund for Volatile Times
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"In 2008, we did better than the S&P by about 8 percent and were up almost 29 percent in 2009," says Bob Millen, chairman of Jensen Investment Management and vice president of the Jensen Portfolio.
This large-cap growth fund is rated five stars by Morningstar, has a low turnover rate and an expense ratio under one percent according to the fund's prospectus. Millen argues that like the turtle, the Jensen Portfolio will always trounce the hare when it comes to long-term performance. His four-man investment team is methodical, currying through countless companies in search of that perfect investment: a value-creating business, with at least 10 years of 15 percent or more return on equity that is shareholder friendly and has a proven management track record in weathering whatever the economy and business cycle can throw at it.
"We are hands-on and management is a critical variable for us," he says. "Visiting with management is important; once we have made the investment, we periodically return to take the temperature of the company and its management."
Millen knows better than most how to size up a company and its management, thanks to his background.
"I don't come from Wall Street, have never been a broker or a sell-side analyst," he explains "But I've started, ran and sold businesses in my career and when you have that kind of background you approach industry differently. We don't buy stocks. We try to buy businesses at a discount that generate excess cash flow consistently."
What, I asked, was the secret to successful long-term investment?
"Patience," he assured me, "and we find very little of that among the investment community these days. People tend to chase stocks up and down and most often they make the wrong decisions."
Some of the stocks the fund holds in size are 3M, Microsoft, Johnson and Johnson, Medtronic, Emerson Electrics, PepsiCo, Abbot Labs, Omnicom, Cognizant Technologies and Colgate Palmolive.
What is his typical holding period for a stock?
"Around seven years," he says. "Although if we could find a company that meets our standards and doesn't become overpriced, we would hold it for a lot longer."
Unfortunately, most investments do become overpriced or, in some cases, the fundamentals deteriorate and the managers are forced to sell it.
Millen contends that they are still finding good companies at reasonable prices despite the markets gains. He believes that 2003 through 2007 was largely a low-quality stock market rally based on excess leverage and cheap credit.
"In 2009, we saw a similar pattern, since the low-quality companies went down the most in '08, they have climbed the most in 2009."
However, Millen and his team believe we are facing a very slow economic recovery over several years as a result of deleveraging and anemic consumer spending.
"It will look more like a hockey stick then a W or U," he argues.
The management of the Jensen Portfolio is betting that the high-quality, growth companies in its portfolio will do far better in that kind of domestic environment while much of their businesses are exposed to higher-growth economies outside of the U.S. That sounds like a reasonable game plan to me.
Bill Schmick is a registered investment adviser and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for Americans in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at
1-888-232-6072
(toll free) or at wschmick@berkshiremm.com. Visit www.afewdollarsmore.com for more of Bill's insights.You can also tune in to Bill's "@theMarket" show on Vox Radio every Friday morning at 8:35, 9:35 and 11:05 or on WBRK at 4:05 every weekday afternoon.
