Against The Grain:
How a Reputation for Fierce Independence Attracted a Like-Minded Manager
For Tyra Pratt, CFA®, stock analysis has never been a career steppingstone, but the cornerstone. Pratt, who joined Jensen as an analyst in 2017 and now serves as a portfolio manager with the Jensen Quality Value team, started doing stock research in college. As part of Roger Williams University’s 10-person analyst team, she evaluated stocks and invested $100,000 of the school’s money in an equity portfolio. The group rose at 3 am most mornings to watch the Asian markets, traveled to Hong Kong to meet with company management, followed their portfolio on multiple Bloomberg screens, and had to defend their recommendations before classmates and school administrators.
Tyra Pratt, CFA®
“I found investing really exciting,” she says. “It made me realize that my actions can have real-world consequences—and rewards. What I’m doing has an impact on someone’s money.”
That’s still the case. Recently, Pratt got into an Uber and noticed the car was outfitted with cameras made by Gentex (GNTX), a company she covers and is a holding of the Jensen Quality Value Strategy. While it’s one thing to research a stock based on its fundamentals and attractive long-term prospects, seeing a product or service in action in the real-world provides a visceral reminder of the purpose of investing.
A home at Jensen
After college, a career in stock research for Pratt was inevitable, but with some strategic detours.
To deal with her student loans, Pratt left an entry-level finance job in her hometown of Albany, New York in order to bartend in Nantucket, Massachusetts for six months. The gig paid more than she had been earning and allowed her to pay down her student loans while also financing a move to the west coast. Pratt’s parents and colleagues were skeptical of that decision, but Pratt was clear-eyed about her goal: a career in stock research in the Pacific Northwest.
As a newly fledged analyst, Pratt applied that same independent-minded approach. She gravitated toward companies with staying power that could weather setbacks, either because of market forces or their own missteps.
By the time she was ready for portfolio management duties, Pratt’s investment style had matured to emphasize strong businesses with enduring competitive advantages. Jensen’s high-conviction, concentrated approach relies on that outlook.
Because Jensen doesn’t use sell-side research, analysts and portfolio managers—who also perform research—must be rigorous in their research conclusions. The investment team operates by consensus for every buy, sell and trim decision.
“Jensen is trying to find quality businesses that are going to perform well regardless of the market environment,” Pratt says. “There’s a discipline in their process that I knew was a good fit for me.”
Fierce independence starts with research
With a base in Lake Oswego, Oregon, Jensen investment teams not only benefit from proximity to some of the country’s most beautiful natural attractions, they gain much-needed perspective, Pratt says.
“We’re so big on independent research and due diligence that it helps being far off the [investment] grid,” Pratt says.
To find investment ideas, Pratt and her colleagues use a collaborative approach that’s rooted in an established methodology combined with rigorous research.
They start by screening companies for quality traits. Companies must have market caps of at least $100 million, and return on equity of at least 15 percent in each of the last 10 years (as determined by Jensen). The result is a small universe of roughly 290 names from which other names are eliminated, such as those with high valuations or poor governance.
From there, the investment team dives into the companies they’re interested in. Whether it’s a favored sector or something that sparks their curiosity—Pratt, for instance, has an affinity for healthcare—each stock is put through the same diligence process. The investment managers develop extensive reports of 30 to 40 pages, to make their case to the rest of the team. The team must reach consensus through a majority vote in order to approve the stock.
The next step in their research process is to meet with company management to get a better sense of how the company is managed. After that, they create a discounted cash flow valuation model. The entire process can take a month or longer, but still, it’s not a sure thing. Some companies may be too expensive and can wait in the wings for months—if not years.
Independence in action
Deep research and independence give Jensen’s investment teams the conviction to see opportunities when they present themselves. Pratt and the rest of the investment team don’t shy away from companies experiencing temporary setbacks if they can see a positive long-term thesis. One such example where Jensen has applied this is Equifax (EFX). In our Insights article on Equifax, learn how this beaten-up stock grabbed the attention of the Jensen Quality Value team.
The specific securities identified are taken from a representative account of the Jensen Quality Value Composite and do not represent all of the securities purchased and sold for the Strategy. Our views expressed herein are subject to change and should not be construed as a recommendation or offer to buy or sell any security and are not designed or intended as a basis or determination for making any investment decision for any security. Our discussions should not be construed as an indication that an investment in a security has been or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of any security discussed herein.
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.
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