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Jan. 29, 2020, 9:56 a.m. EST

How Microsoft, PepsiCo and other solid plays helped this fund manager ride out a bumpy decade

Critical information for the U.S. trading day

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By Barbara Kollmeyer, MarketWatch


Getty Images
In 2000, when times were tougher for Microsoft.

Secure those eyes on the back of your head for Wednesday.

After record-breaking Apple results, investors will look to Facebook, Tesla and a trove of other companies to bring in some upbeat earnings. We’ll also get the outcome of the Federal Reserve meeting, where markets are looking for steady policy and could use some calm demeanor from Chairman Jerome Powell.

That is as the coronavirus death toll tops 130 and confirmed China cases near 6,000, notably overtaking the SARS outbreak of 2003. It may prove a big test for the old and new investor.

Our call of the day comes from Eric Schoenstein, portfolio manager for the Jensen Quality Growth Fund /zigman2/quotes/200918620/realtime JENSX -3.37%  at Jensen Investment Management, who joined the firm in 2002 and started managing the fund in 2004, has clearly seen the fund through a number of market crises over the years.

Average annual total returns for the fund over 10 years are just over 13%, keeping pace with the S&P 500. He said the buy-and-hold fund has consistently sought companies with strong business models and a competitive advantage to keep free cash flow coming and ride out market-moving events. Think consumer staples, IT and health care, Schoenstein tells MarketWatch.

Some of the top five companies in that fund have been in it more than a decade—conglomerate United Technologies /zigman2/quotes/203237915/lastsale UTX -7.16% , Microsoft /zigman2/quotes/207732364/lastsale MSFT -4.11% , PepsiCo /zigman2/quotes/208744353/lastsale PEP +0.17% , medical technology group Beckton Dickinson /zigman2/quotes/202288971/delayed SG:BTX 0.00% and Johnson & Johnson /zigman2/quotes/201724570/lastsale JNJ -2.69% .

“When we first owned Microsoft it was dead money,” the manager said, noting that regulatory concerns were hanging over the software maker, but that it went on to become a jewel in the portfolio.

Schoenstein is braced for a tougher 2020, though. “We remain somewhat concerned about what’s happening in 2020,” he said, adding that for gains to continue, markets will need to see more support coming from “actual earnings and business performance.”

The fund also holds Google parent Alphabet /zigman2/quotes/202490156/lastsale GOOGL -4.53%  and Apple. Fellow fund manager Kevin Walkush said they started investing in 2016 in Apple, and while they remain happy on the iPhone maker’s prospects and fundamentals, valuation gives them pause so they’d be “cautious about initiating a position at this time.”

The market

The Dow /zigman2/quotes/210407078/delayed YM00 -0.13% , S&P /zigman2/quotes/210599714/realtime SPX -3.37%   and Nasdaq /zigman2/quotes/210598365/realtime COMP -3.79%  are higher as trading gets underway, while European stocks /zigman2/quotes/210599654/delayed XX:SXXP -3.26% also rose. In Asia, Hong Kong’s Hang Seng /zigman2/quotes/210598030/delayed HK:HSI +0.56%  reopened with losses, while South Korea’s Kospi /zigman2/quotes/210598069/delayed KR:180721 +1.87%    posted gains.

The chart

Our chart from Goldman Sachs shows which assets have been hardest hit by coronavirus concerns in recent days:


Bloomberg, Goldman Sachs
Performance between Jan. 17 and Jan. 27, 2020

They also note that investors may want to brace for four weeks of rough trade, based on prior epidemics:

/zigman2/quotes/200918620/realtime
US : U.S.: Nasdaq
$ 41.89
-1.46 -3.37%
Volume: 0.00
March 27, 2020
loading...
/zigman2/quotes/203237915/lastsale
US : U.S.: NYSE
$ 97.15
-7.49 -7.16%
Volume: 10.15M
March 27, 2020 6:30p
P/E Ratio
15.16
Dividend Yield
3.03%
Market Cap
$84.15 billion
Rev. per Employee
$277,021
loading...
/zigman2/quotes/207732364/lastsale
US : U.S.: Nasdaq
$ 149.70
-6.41 -4.11%
Volume: 57.04M
March 27, 2020 4:00p
P/E Ratio
26.06
Dividend Yield
1.36%
Market Cap
$1138.63 billion
Rev. per Employee
$902,473
loading...
/zigman2/quotes/208744353/lastsale
US : U.S.: Nasdaq
$ 120.46
+0.20 +0.17%
Volume: 9.85M
March 27, 2020 4:00p
P/E Ratio
23.19
Dividend Yield
3.17%
Market Cap
$167.35 billion
Rev. per Employee
$242,172
loading...
/zigman2/quotes/202288971/delayed
SG : Singapore: SGX
$ 0.21
0.00 0.00%
Volume: 0.00
March 20, 2020 2:46p
P/E Ratio
4.32
Dividend Yield
N/A
Market Cap
$9.98 million
Rev. per Employee
N/A
loading...
/zigman2/quotes/201724570/lastsale
US : U.S.: NYSE
$ 123.16
-3.41 -2.69%
Volume: 12.13M
March 27, 2020 6:30p
P/E Ratio
21.87
Dividend Yield
3.09%
Market Cap
$324.69 billion
Rev. per Employee
$603,509
loading...
/zigman2/quotes/202490156/lastsale
US : U.S.: Nasdaq
$ 1,110.26
-52.66 -4.53%
Volume: 3.14M
March 27, 2020 4:00p
P/E Ratio
22.57
Dividend Yield
N/A
Market Cap
$835.52 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/210407078/delayed
US : U.S.: CBOT
$ 21,410.00
-27.00 -0.13%
Volume: 255,567
March 27, 2020 3:59p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
2,541.47
-88.60 -3.37%
Volume: 3.59B
March 27, 2020 5:12p
loading...
/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
7,502.38
-295.16 -3.79%
Volume: 3.45M
March 27, 2020 5:16p
loading...
/zigman2/quotes/210599654/delayed
XX : STOXX
310.90
-10.48 -3.26%
Volume: 0.00
March 27, 2020 5:50p
loading...
/zigman2/quotes/210598030/delayed
HK : Hong Kong Exchange
23,484.28
+131.94 +0.56%
Volume: 2.20M
March 27, 2020 4:08p
loading...
/zigman2/quotes/210598069/delayed
KR : Korea Exchange
1,717.73
+31.49 +1.87%
Volume: 1.08M
March 27, 2020 3:32p
loading...
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