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Oct. 4, 2019, 3:58 p.m. EDT

Few stocks pass this rigorous test, but those that do may serve you well through market turmoil

Rob McIver of Jensen Investment Management describes a successful strategy of holding ‘all-weather businesses’

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By Philip van Doorn, MarketWatch

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Microsoft /zigman2/quotes/207732364/composite MSFT -1.79% , the largest holding of the fund, is an example of an all-weather business, McIver said. Jensen first bought shares of the company in 2005, McIver said, “when it was well out of favor.”

At that time, Jensen’s managers found the company’s free-cash-flow generation “compelling,” he said. Fast forward to 2019 and he still believes there’s an excellent business case for Microsoft because of the continuing drive for businesses to become more efficient. He also believes there is still “a very long runway” for the company to expand its cloud-based subscription service model.

When discussing pricing risk, McIver pointed to a recent sale of Coca-Cola /zigman2/quotes/209159848/composite KO +0.67% , because the company’s share price had exceeded the Jensen team’s estimate of its “full value.” The firm had held shares of Coke since 1992. 

Two long-term holdings McIver mentioned were Mastercard and TJX. He said Mastercard has been more profitable than its rival payment processor Visa /zigman2/quotes/203660239/composite V -1.21% , and that this is the type of financial-services company he prefers to invest in, because there is no credit risk. The fund doesn’t hold any bank stocks.

For TJX, McIver praised the company’s “treasure-hunt appeal” for middle-class U.S. consumers because of the ever-changing product lineups in its TJ Maxx, HomeGoods and Marshalls stores.

Two recent purchases

McIver said Jensen had recently purchased shares of Broadridge Financial Solutions /zigman2/quotes/203884665/composite BR -0.08% , which is a good example of a company with an “all-weather” business model. The company specializes in corporate-communications services, including managing proxy voting, annual reports and trade processing.


Jensen Investment Management
Rob McIver, a managing director and portfolio manager at Jensen Investment Management.

“What we find attractive about this business it is immune to market volatility,” McIver said. “Proxy activities have to take place as a matter of course.”

He added that Broadridge’s minimum ROE over the past 10 full years was 32%, making for an “incredibly profitable business.” The company’s average annual revenue growth over the past five years has been 12%, with earnings-per-share growth of 17%, he said.

Jensen also made a recent initial purchase of VF Corp. /zigman2/quotes/206706147/composite VFC +2.17% shares. The company is best known for its North Face outdoor brand and Vans footwear brand. McIver said he was impressed with VF’s “brand management,” including its decision to spin off Kontoor Brands /zigman2/quotes/212177228/composite KTB +3.43% , which holds the Wrangler and Lee brands.

Jensen doesn’t hold shares of Kontoor because the spun-off company didn’t meet its ROE requirement.

McIver said VF is a “slower-growing company,” in part because of the Kontoor spinoff, but that it was also a stable business, “given the volatility of the market.” VF’s five-year annualized sales growth has been 2.5%, with EPS increasing 3.5%, he said. The 10-year figures look better, with average annual sales growth of 6.7% and EPS growth of 11.5%, he added.

Top holdings

Jensen published the entire list of holdings for the Jensen Quality Growth Fund as of Aug 5. At that time, the fund was 4% invested in cash and equivalents. Here are the fund’s 29 equity investment positions as of that date:

Company Ticker Share of fund Total return - 2019 through Sept. 27 Total return - 5 years
Microsoft Corp. /zigman2/quotes/207732364/composite MSFT 6.6% 37% 232%
Becton, Dickinson and Co. /zigman2/quotes/205527610/composite BDX 6.6% 11% 134%
PepsiCo Inc. /zigman2/quotes/208744353/composite PEP 6.6% 25% 69%
United Technologies Corp. 5.6% 30% 46%
Johnson & Johnson /zigman2/quotes/201724570/composite JNJ 5.3% 2% 38%
UnitedHealth Group Inc. /zigman2/quotes/210453738/composite UNH 5.1% -12% 169%
Oracle Corp. /zigman2/quotes/202180826/composite ORCL 4.8% 21% 50%
3M Co. /zigman2/quotes/205029460/composite MMM 4.3% -11% 32%
Stryker Corp. /zigman2/quotes/207664662/composite SYK 4.1% 37% 179%
Accenture Plc Class A /zigman2/quotes/201711136/composite ACN 3.9% 37% 167%
Ecolab Inc. /zigman2/quotes/202628210/composite ECL 3.6% 35% 80%
Alphabet Inc. Class C /zigman2/quotes/205453964/composite GOOG 3.6% 18% 113%
Apple Inc. /zigman2/quotes/202934861/composite AAPL 3.4% 40% 137%
Cognizant Technology Solutions Corp. Class A /zigman2/quotes/206555936/composite CTSH 3.0% -7% 35%
Omnicom Group Inc. /zigman2/quotes/209996569/composite OMC 2.8% 9% 29%
Pfizer Inc. /zigman2/quotes/202877789/composite PFE 2.7% -15% 46%
Procter & Gamble Co. /zigman2/quotes/202894679/composite PG 2.7% 38% 73%
United Parcel Service Inc. Class B /zigman2/quotes/201245396/composite UPS 2.6% 25% 42%
NIKE Inc. Class B /zigman2/quotes/203439053/composite NKE 2.3% 26% 119%
V.F. Corp. /zigman2/quotes/206706147/composite VFC 2.3% 34% 60%
Emerson Electric Co. /zigman2/quotes/200181610/composite EMR 2.2% 14% 24%
General Mills Inc. /zigman2/quotes/206659526/composite GIS 2.1% 45% 30%
Mastercard Inc. Class A /zigman2/quotes/207581792/composite MA 1.9% 43% 271%
TJX Cos. Inc. /zigman2/quotes/203136811/composite TJX 1.8% 24% 97%
Amphenol Corp. Class A /zigman2/quotes/207999687/composite APH 1.7% 19% 97%
Broadridge Financial Solutions Inc. /zigman2/quotes/203884665/composite BR 1.5% 30% 226%
Texas Instruments Inc. /zigman2/quotes/202237907/composite TXN 1.3% 37% 200%
Intuit Inc. /zigman2/quotes/203136605/composite INTU 1.0% 34% 222%
Waters Corp. /zigman2/quotes/205633949/composite WAT 0.9% 18% 122%
Sources: Jensen Investment Management, FactSet

You can click on the tickers for more about each company.

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Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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