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How an International Perspective Gives a Jensen Analyst an Expanded Appreciation
for Quality

Headshot of Jensen employee Apurva Parikh

Apurva Parikh, CFA

Business Analyst

Growing up in Mumbai—the financial capital of India—Apurva Parikh had a clear view of the Bombay Stock Exchange from his family’s kitchen window. At the time, Apurva was more interested in bicycles and motorcycles than stocks, but his parents’ owned shares of Bajaj Auto, the world’s third-largest maker of motorcycles. Because of Parikh’s love of two-wheelers, they brought him to visit the company’s manufacturing facilities during the annual meeting in Pune, which was open to all shareholders. 

Parikh was instantly impressed by the manufacturing of the bikes going through the assembly line. But what stood out even more was learning about the people behind the motorcycles. The Bajaj family has long been known to manage their businesses ethically, sending their own children to local schools and working to combat rural poverty through philanthropy to schools and healthcare centers. 

“That really made an impression on me,” says Parikh, an analyst working on the Jensen Global Quality Growth Strategy. “Looking back now, some of those experiences helped cement the concept of looking at stocks as ownership stakes in businesses.” 

Quality from the beginning

While the concept of quality investing is broadly defined, Parikh explains, measures such as balance sheet strength, high free cash flow generation, and prudent capital allocation are common characteristics of high-quality businesses. 

At Jensen, quality drives all investment decisions, and it’s the first screen when considering any new investment. To qualify for inclusion, stocks must first demonstrate returns on equity (ROE) of at least 15% for each of the past 10 years as determined by the investment team.  

But quality screens are just the beginning. After discarding names that don’t pass Jensen’s market-cap and valuation criteria, members of the investment team choose which stocks they want to evaluate further and then spend weeks doing the research to understand the hard-to-measure dynamics at play. While there are no specific sector or industry assignments at Jensen, investment team members gravitate toward companies based on their interests. Parikh, for instance, covers international consumer staples companies because he had experience researching them before.

The next step is to write up a 40- to 60-page report that details their findings. The team wants to understand if management is up to the task of building the business with lasting competitive advantages that can thrive in different economic environments.  

The team then meets to talk through each of these reports in more detail and to challenge each other’s assumptions. That usually results in an analyst or portfolio manager having to do additional research to address any concerns. This process can take months before a stock investment recommendation is given the green light. 

That’s where the team-based approach really helps,” Parikh explains. “We have team members who have been here as long as 20 years, and they provide a long-term perspective.”

That’s where the team-based approach really helps,” Parikh explains. “We have team members who have been here as long as 20 years, and they provide a long-term perspective.”

Read our Insights post about Diageo to find out how the spirit maker’s big bet on premium brands is driving growth.

Focused on the long view

Parikh began his career in Bangalore working in economics research and data analytics. As he started investing his savings, he became interested in researching stocks and moved to the United States to enroll at the University of Wisconsin-Madison School of Business’s Applied Securities Analyst Program. Second-year students in the program are divided into equity and fixed-income teams to manage a $50 million portfolio. Parikh was assigned to the equity team, and that’s been his focus ever since. 

After doing research for several sell-side firms, Parikh came to prefer buy-side stock analysis. 

Sell-side research is a lot more short-term because you’re mainly focused on near-term data points and narratives driving the stock,” he says. “I wanted to look at investing on a longer-term basis.” 

Jensen’s average holding period for the Quality Growth Strategy is seven to eight years. Parikh came on board in late 2019 as part of the team that would be launching Jensen’s third strategy, Global Quality Growth, the international sibling of the firm’s flagship Quality Growth Strategy.  

A valuable international perspective

Today’s economic uncertainty on multiple fronts is causing investors to approach markets differently than they have for the last decade. Having grown up outside the United States, Parikh brings a different worldview that can put things into context. 

Take for example, inflation. “In the United States and developed markets, inflation is a generational event,” Parikh says. “But anyone growing up outside the United States or Europe has seen inflation. Many consumer staples categories can deal with it.” 

Growing up in India, Parikh remembers his favorite candy bars getting smaller during periods of inflation—a practice known as “shrink-flation,” where companies maintain their prices but slash the size of their products. 

“High-quality companies with strong brands and high market share tend to have the ability to manage inflation so it doesn’t harm them as much,” he says. “There might be a short-term impact on the margin, but over a longer period of time they are generally able to pass costs on to consumers.”  

The unique perspectives of Jensen’s investment team, coupled with a commitment to quality, help the analysts and portfolio managers navigate these uncertain times with confidence. 

Past performance is no guarantee of future results. The information contained herein represents management’s current expectation of how the Jensen Global Quality Growth and Jensen Quality Growth strategies will continue to be operated in the near term; however, management’s plans and policies in this respect may change in the future. In particular, (i) policies and approaches to portfolio monitoring, risk management, and asset allocation may change in the future without notice and (ii) economic, market and other conditions could cause the strategies and accounts invested in the strategies to deviate from stated investment objectives, guidelines, and conclusions stated herein.

Certain information contained in this material represents or is based upon forward-looking statements, which can be identified by the use of terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue”, or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of a client account may differ materially from those reflected or contemplated in such forward-looking statements.

This information is current as of the date of this material and is subject to change at any time, based on market and other conditions.

Jensen Investment Management, Inc., is an investment adviser registered under the Investment Advisers Act of 1940.  Registration with the SEC does not imply any level of skill or training. Although taken from reliable sources, Jensen cannot guarantee the accuracy of the information received from third parties.

© 2022 Jensen Investment Management

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