Uncompromising Quality.
How We Invest
A consistent, sustainable investment process is vital to weathering different economic climates.
The strength of our investment philosophy is based on an unwavering commitment to investing in quality businesses. Our portfolio managers work together, bringing diverse perspectives and a broad spectrum of business experience to every investment decision.
Philosophy & The Jensen Quality Universe
A consistent, sustainable investment process is vital to weathering different economic climates.
The strength of our investment philosophy is based on an unwavering commitment to investing in quality businesses.
We believe these Quality Companies possess sustainable competitive advantages, creating value as profitable businesses that can, over time, provide attractive returns with less risk than the overall market.
The Jensen Quality Universe TM
The Jensen Quality Universe™ includes only those businesses that have produced a return on shareholder equity of 15% or greater in each of the past ten years, as determined by the Investment Team.
We search for Quality Companies by targeting exceptional business performance combined with endurance.
For those businesses that qualify, we have found the stamina of these quality businesses to be powerful; possessing sustainable competitive advantages and producing consistent earnings growth which, when compounded, can deliver value to shareholders.
The ability to maintain these characteristics over time has generally resulted in increasing free cash flow well in excess of operating needs—which can be a prime indicator of a valuable investment.
Research Process
At Jensen, we believe that companies well positioned to maintain competitive advantages, that exhibit continued high returns on equity and free cash flow, should yield opportunities for long-term growth and capital appreciation, while reducing overall investment risk.
We believe that adherence to this investment philosophy can result in a portfolio that participates in up markets and adds value by protecting capital during volatile periods in the market.
Define & Refine.
The first step in defining the Jensen Quality Universe TM is to begin with different companies that have demonstrated strong business performance, as evidenced by a Return on Equity (ROE) of 15% or greater in each of the past ten years as determined by the Investment Team. The Investment Team further refines the Jensen Quality Universe TM by strategy-appropriate market capitalization and domicile.
Analyze.
Preliminary analysis is conducted on qualifying businesses to identify companies for further due diligence with the goal of identifying a bench of companies that we believe have the most favorable business outlooks and warrant further investigation.
Fundamental analysis is performed on a bottom-up basis to determine the durability of a company’s competitive advantages and to identify growth and profitability drivers as well as potential threats and risks. Research includes, but is not limited to, reading annual reports and government filings, reviewing news items related to the company, building proprietary financial models to assess company profitability and financial strength, assessing competitive advantages and barriers to entry, evaluating company management teams, comparing the company to its peers, and conducting management interviews to clarify outstanding questions.
Upon completion of due diligence, the Portfolio Manager or Business Analyst prepares a comprehensive report, which is then reviewed and discussed by the entire Investment Team.
Modeling.
Jensen focuses primarily on the discounted cash flow (DCF) method to determine valuation of the companies being considered for investment. Our long-held belief is that the full value of a business is the present value of the cash flows the company is expected to generate in the future.
Holding Selection & Dynamic Positioning
Holding Selection
Buy and sell decisions are made by consensus by the Investment Team after thoughtful deliberation. Once a company is added to the portfolio, we will hold the stock of the business as long as the company continues to perform well versus our expectations, does not become overpriced as a stock, or until another more compelling opportunity for investment is identified.
Dynamic Positioning
Position sizes are determined through weekly and quarterly portfolio assessments. This process evaluates the durability of competitive advantages, whether the valuation remains attractive, as well as additional consideration for stock-specific risks or liquidity issues.
Risk Management
Risk Management is an integral component of our investment philosophy and process. Jensen’s “Risk First” mindset serves as a pillar of our investment process.
Pricing Risk
- High-quality universe creates a pool of candidates that have demonstrated stability in business model performance.
- Independent and internally generated fundamental research on eligible companies with a long-term view.
- Insistence on holding companies with high-quality earnings and free cash flow to support reinvestment opportunities.
- Daily meetings to identify potential changes in our long-term investment thesis for each company.
Security Specific Risk
- Weekly dashboard review of key metrics such as upside-downside capture, standard deviation and beta for each holding.
- Trading systems designed to prevent violations of restrictions.
There is no assurance that the investment process will lead to successful investing or that the stated objective(s) will be met. Diversification does not assure a profit or protect against a loss in a declining market.
ESG
The team does not use ESG scores to make portfolio construction decisions, but rather to inform them of potential ESG-related risks and opportunities to the portfolio. It is the responsibility of the analyst to understand the underlying drivers for a given company’s ESG score and vet any ESG risks identified by the metrics.
Exclusion.
Jensen may exclude certain companies it deems a participant in an industry which does not appropriately mitigate risk nor enhance shareholder wealth, as determined through an ESG lens.
Engagement.
We are not activist investors. However, we do expect Jensen Quality Companies to function with strong governance structures and management teams that exhibit effective stewardship of shareholder capital. We expect the leadership teams from our Quality Companies to appropriately value environmental, social and governance issues as they would with any relevant business issues. Moreover, we need to have confidence that they will manage them in a way that mitigates business risk and enhances long term shareholder value.
Integration.
Jensen has developed proprietary metrics based on 3rd party ESG data and included them in its investing process, which enables us to rank and score every company in the Jensen Quality Universe by ESG criteria. We now include this ranking in our portfolio management dashboard, as well as in our research reports, which include a specific section dedicated to evaluating a company’s ESG issues.
Jensen Quality Strategies
Quality Growth
30+ years of unwavering commitment to quality.
- US Large-Cap Blend / Large-Cap Core
- Bottom-Up Fundamentals
- Portfolio Companies from Jensen Quality Universe TM
- Team Approach
Quality Value
Capturing quality down the cap spectrum.
- Mid-Cap Blend / Mid-Cap Core
- Bottom-Up Fundamentals
- Portfolio Companies from Jensen Quality Universe TM
- Team Approach
Global Quality Growth
Quality is location and domicile agnostic.
- Global Large-Cap Blend / Large-Cap Core
- Bottom-Up Fundamentals
- Portfolio Companies from Jensen Quality Universe TM
- Team Approach