The S&P 500 Index (“Index”) posted a 28.07% return through the first 11 months of 2024, marking a continuation of the rally that began in October 2022. Strong equity market returns were driven by a combination of earnings growth and multiple expansion, as investors focused on implications of Federal Reserve interest rate cuts, the development of artificial intelligence (AI) models and broad economic growth.
Below are some key drivers that supported the 2024 equity market advance.
Large-Cap Tech Stocks. For the second consecutive year, the Information Technology (“IT”) sector was the leading contributor to the Index increase, producing a total return of 35.05%. In particular, the five largest IT sector weightings — Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), Broadcom (AVGO) and Salesforce (CRM) — averaged a total return of 57.85% and accounted for nearly a third of the Index’s total return.
Economic Resilience and Low-Quality Rally. Real U.S. GDP growth averaged 3.2% in 2023 and 2.5% in the first nine months of 2024, defying widespread predictions of a recession as recently as late 2022.1 This positive surprise has supported the pervasive “risk-on” investor sentiment of the past two years. To wit, per the S&P Quality Rankings, low-quality stocks have outperformed high-quality stocks by more than 21 percentage points since the current bull market commenced in October 2022.
Earnings Growth. After increasing 8.4% in 2023, earnings for S&P 500 companies are expected to rise by 9.5% and 16.8% in 2024 and 2025, respectively. The forecast growth rate in 2025 is anticipated to be led by IT and Health Care sector stocks. These optimistic forecasts support expectations for further stock price advances.
Dovish Fed. As of Dec. 11, 2024, the U.S. Federal Open Market Committee (FOMC) cut the federal funds rate three times in late 2024, marking a sharp pivot from a series of rate increases that began in early 2022. Coupled with stable economic growth, FOMC accommodations raised hopes that the U.S. economy could a achieve a “soft landing.”
Jensen Quality Growth Relative Performance and Key Holdings: 2024
In the first 11 months of 2024, the Jensen Quality Growth Fund I Shares (“Fund”) produced a total net return of 14.81%,* underperforming the Index by 1,326 basis points. Our analysis of relative performance attribution for this period highlights the following.
*Jensen Quality Growth Fund Performance (net of fees, as of 12/31/24)
Class I Shares (JENIX): 1 year 10.28%, 5 year 10.77%, and 10 year 12.05%.
The I Shares annual operating expense ratio is 0.60%.
Performance data quoted represents past performance; past performance does not guarantee future results. Performance figures shown for periods over one year are annualized. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. To obtain updated performance information that is current as of the most recent month end, please call 1.800.992.4144 or visit jenseninvestment.com.
2024 Top Individual Relative Stock Contributors
| Portfolio / Benchmark Weight | Portfolio / Benchmark Weight | Portfolio / Benchmark Weight | ||
|---|---|---|---|---|
| Company Name | 2024 Total Return | JENIX | S&P 500 Index | Difference |
| Amphenol | 47.48% | 2.10% | 0.16% | 1.94% |
| Automatic Data Processing | 33.94% | 3.84% | 0.23% | 3.61% |
| Stryker | 31.84% | 5.58% | 0.26% | 5.32% |
Source: Refinitiv Eikon, data as of 11/30/2024.
Amphenol (APH) is a designer and manufacturer of interconnect systems, sensors, and fiber optic and coaxial cable. The company benefits from a strong competitive position across a diverse range of end markets. In 2024, Amphenol’s shares rallied in response to accelerating financial results in its data center end market, fueled by AI-related demand. We trimmed the position throughout the year due to heightened stock price valuation.
Automatic Data Processing (ADP) is a leading human capital management software and cloud company focused on enterprise payroll processing and employee outsourcing. During the year, the company reported stable revenue and earnings growth due to strong domestic employment, better-than-expected client retention and improved interest income. We trimmed the Automatic Data Processing position during the year due to elevated stock price valuation, but it remains a core Fund holding due to the strength of its brand, high customer retention and consistent business results.
Stryker (SYK) is a global leader in orthopedic implants, surgical tools and healthcare delivery equipment, primarily serving hospitals and other healthcare delivery organizations. Longstanding product development and commercial relationships with these clients result in a stable competitive moat. The company’s shares advanced in 2024 due to better-than-expected financial results, driven by share gains in both its orthopedic and hospital equipment businesses. We reduced the Stryker position during the year but it remains a top Fund holding.
2024 Top Individual Relative Stock Detractors
| Portfolio / Benchmark Weight | Portfolio / Benchmark Weight | Portfolio / Benchmark Weight | ||
|---|---|---|---|---|
| Company Name | 2024 Total Return | JENIX | S&P 500 Index | Difference |
| Nike | -26.57% | 2.97% | 0.24% | 2.73% |
| Accenture | 4.93% | 6.61% | 0.47% | 6.14% |
| Intuit | 3.29% | 5.52% | 0.39% | 5.13% |
Source: Refinitiv Eikon, data as of 11/30/2024.
Nike (NKE) is one of the world’s leading suppliers of footwear, sportswear and sports equipment. During the year, Nike reported mixed financial results with flattish top-line growth that was offset by margin improvement. However, in our opinion, the company’s near-term financial outlook is uncertain. Nike initially forecast a revenue and earnings decline for fiscal year 2025 before withdrawing financial guidance in association with an executive leadership change. At present, the company is attempting to reignite relationships with its wholesale distribution partners to restimulate customer demand in that channel. We maintain our confidence in the company’s long-term business fundamentals, backed by a powerful brand and innovation capabilities. We reduced the Fund’s position in Nike during the year, though, reflecting heightened uncertainties and business execution risk.
Accenture (ACN) is a global management and information technology consulting company. In 2024, the company’s shares trailed the Index due to end market sluggishness. In particular, traditional corporate IT spending slumped due to overinvestment in previous years. Accenture remains among the Fund’s top holdings, and we added to the position in early 2024 to take advantage of positive, long-term business fundamentals and its attractive valuation.
Intuit (INTU) is a provider of business and financial management software and cloud services for small businesses, consumers, accounting professionals and financial institutions. Key products include QuickBooks and TurboTax. During 2024, Intuit shares underperformed due to concerns about new tax software competition and uncertain investment returns on the recent acquisitions of MailChimp and Credit Karma. Reflecting our confidence in long-term business fundamentals, we maintained the Fund’s position in 2024 after adding to it in 2022 and 2023.
Shares of Nvidia (not shown in the previous table), a graphic processing unit and software designer, produced a total return of 179.23% in the first 11 months of 2024. During that period, it was the largest relative individual performance detractor as it comprised 5.65% of the Index and was not owned by the Fund. Nvidia only recently qualified for our investable universe and we are actively performing due diligence on the company as a potential investment opportunity.
2024 Sector Contributors
| 2024 Total Return* | 2024 Total Return* | Portfolio / Benchmark Weight | Portfolio / Benchmark Weight | Portfolio / Benchmark Weight | |
|---|---|---|---|---|---|
| Sector | JENIX | S&P 500 Index | JENIX | S&P 500 Index | Total Effect** |
| Materials | 36.48% | 11.97% | 2.28% | 2.25% | 0.51% |
| Energy | 0.00% | 16.84% | 0.00% | 3.68% | 0.45% |
| Real Estate | 0.00% | 15.14% | 0.00% | 2.28% | 0.32% |
Source: Refinitiv Eikon, data as of 11/30/2024.
*Total return calculations through the first 11 months of 2024.
**Total effect incorporates the relative performance differences in total return and sector weights.
Sector allocations in the Energy and Real Estate sectors and security selection in the Materials sector contributed to the Fund’s relative investment performance.
The Fund does not own any securities in the Energy or Real Estate sectors as very few businesses qualify for the Jensen investable universe due to their low and/or inconsistent historical business results. Within Materials, performance benefited from the addition of Sherwin-Williams (SHW) during the year. Since its inclusion into the Fund, SHW shares have risen due to evidence of market share gains and pricing activity which has allowed the company to grow despite lower housing market activity.
2024 Sector Detractors
| 2024 Total Return* | 2024 Total Return* | Portfolio / Benchmark Weight | Portfolio / Benchmark Weight | Portfolio / Benchmark Weight | |
|---|---|---|---|---|---|
| Sector | JENIX | S&P 500 Index | JENIX | S&P 500 Index | Total Effect** |
| Information Technology | 15.04% | 35.05% | 34.67% | 30.77% | -6.49% |
| Consumer Discretionary | -1.52% | 27.10% | 8.69% | 10.15% | -3.06% |
| Consumer Staples | 7.41% | 20.89% | 7.14% | 5.94% | -1.16% |
Source: Refinitiv Eikon, data as of 11/30/2024.
*Total return calculations through the first 11 months of 2024.
**Total effect incorporates the relative performance differences in total return and sector weights.
Security selection within the IT, Consumer Discretionary and Consumer Staples sectors detracted from relative Fund performance.
Within IT, the Fund’s lack of exposure to Nvidia and poor investment returns from Accenture and Intuit were the primary drivers of relative underperformance. In Consumer Discretionary, performance was hampered by weak investment performance from Nike and Starbucks (SBUX), and from not owning Amazon (AMZN). Relative performance in Consumer Staples was constrained by a share price decline in Pepsi (PEP) and lack of exposure to Costco (COST) and Walmart (WMT).
2024 Quality Trends2
According to our analysis, low-quality stocks outperformed high-quality stocks by 960 basis points during the first 11 months in 2024, representing a headwind to the Fund’s relative performance due to its significant overweight in high-quality stocks. During this period, high-quality stocks accounted for 56% of Fund holdings whereas 33% of Index holdings were comprised of high-quality stocks. We attribute low-quality leadership in 2024 to U.S. economic resilience coupled with reductions in the federal funds rate; enthusiasm over potential policy changes; and a focus on future cash flows from novel AI-driven growth.
2024 Growth and Yield Trends
| Dividend Quintile | Dividend Yield | S&P 500 Return 2024* | EPSGrowth Quintile | EPS Growth LT | S&P 500 Return 2024* |
|---|---|---|---|---|---|
| Zero Yield (Lowest) | 0.00% | 19.67% | – | NA | NA |
| Quintile 1 | 0.41% | 17.08% | Quintile 1 | 2.02% | 12.52% |
| Quintile 2 | 0.61% | 4.62% | Quintile 2 | 8.99% | 9.29% |
| Quintile 3 | 1.02% | 13.25% | Quintile 3 | 13.24% | 11.26% |
| Quintile 4 | 1.70% | 12.55% | Quintile 4 | 17.51% | 8.81% |
| Quintile 5 (Highest) | 3.16% | 8.31% | Quintile 5 | 47.37% | 16.53% |
Source: Refinitiv Eikon, data as of 11/30/2024.
*Total return calculations through the first 11 months of 2024.
In 2024, Index stocks with the highest EPS growth and lowest dividend yield outperformed. In our view, these data points suggest that equity investors were willing to accept higher potential future earnings while eschewing more likely, near-term cash returns. This trend represented a headwind to relative Fund performance in 2024 as the Fund had a lower exposure to the lowest dividend yield and highest EPS growth stocks.
Market Cycle View
| Present Cycle | Present Cycle | Present Cycle | Previous Cycle | Previous Cycle | Full Period** | |
|---|---|---|---|---|---|---|
| Total Return (net)* | Peak-to-Trough 1/3/22-10/12/22 | Trough-to-Present 10/12/22-11/30/24 | Peak-to-Present 1/3/22-11/30/24 | Peak-to-Peak 2/19/20-1/3/22 | Peak-to-Peak 2/19/20-1/3/22 | Multiple Cycles 10/9/07-11/30/24 |
| JENIX | -22.98% | 19.54% | 4.21% | 24.08% | 10.02% | 10.45% |
| S&P 500 Index | -24.49% | 29.71% | 9.91% | 22.37% | 8.73% | 10.34% |
| Difference | 1.51% | -10.17% | -5.70% | 1.71% | 1.29% | 0.11% |
Source: Jensen Investment Management, data as of 11/30/2024.
*Returns are annualized for periods greater than one year.
** Capturing all full market cycles since JENIX inception of 6/30/03.
We define a full market cycle as one market peak to the next. The current cycle commenced on Jan. 3, 2022, the highest closing price for the Index for the previous cycle. Since that date, the lowest close for the Index occurred on Oct. 12, 2022, and the Index is presently near its all-time high.
In the current cycle (shown in the “Peak-to-Present” column in the table above), the Fund’s investment performance trails that of the Index through Nov. 30, 2024. As discussed, we attribute this underperformance primarily to the low-quality nature of the ongoing market rally in which investors have favored momentum and growth expectations over cash flow generation and earnings stability. Given the extreme nature of these recent trends, we believe it is important to consider relative performance over multiple cycles in addition to the present one.
Jensen Quality Growth Fund Relative Earnings Performance
Estimated Earnings Growth
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | YTD 2024 | CAGR | Std Dev | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| JENIX | 6.7% | 3.8% | 6.9% | 9.2% | 17.2% | 7.4% | -1.2% | 41.0% | 6.2% | 7.2% | 10.0% | 10.2% | 11.1% |
| S&P 500 Index | 5.3% | -11.1% | 5.8% | 17.2% | 21.7% | 3.6% | -22.1% | 70.1% | -5.4% | 8.4% | 8.1% | 7.4% | 23.7% |
Sources for chart and table: Refinitiv Eikon, S&P Dow Jones Indices and Jensen Investment Management; data as of 09/30/2024. Portfolio figures based on yearly weighted-average portfolios. YTD 2024 EPS growth calculated as rate of change between first 9 months of 2023 and 2024.
As shown in the previous table, since 2014 earnings for companies held in the Fund have increased at a faster rate and with less volatility than those of the Index. Moreover, in this extended period, earnings for companies held in the Fund declined in only one year (2020) whereas Index earnings declined in three separate years (2015, 2020 and 2022). We expect that earnings growth stability could become an important factor should we see a reversal in the current investor sentiment favoring momentum and volatility.
Outlook and Fund Positioning: 2024
S&P 500 Index: Total Return Versus Earnings Growth
Source: Morningstar, Inc. and S&P Dow Jones Indices, data as of 09/30/2024. YTD EPS growth calculated as a rate of change between first nine months of 2023 and 2024.
After the second consecutive year of 20%-plus market returns, we maintain a neutral near-term outlook for market returns in 2025.
As shown in the previous chart, the Index has advanced at a faster rate than earnings over the past 21 months, implying that multiple expansion was responsible for a significant portion of its gains. In our view, higher multiples reflect investor optimism about future growth from AI development and expectations for further reductions of the federal funds rate.
At the same time, for the second consecutive year, strong market performance was led by a narrow group of stocks. Namely, for the first 11 months of 2024, the combined weight of the five largest companies in the Index — Microsoft, Apple, Amazon, Nvidia and Meta (META) — represented more than 25%. On average, these stocks gained approximately 63% and accounted for approximately 39% of the Index’s total return.3
Concurrently, we also acknowledge the secular growth prospects from novel technology investments and that 2025 will be the first year of a new political landscape which could support economically favorable policy changes. As a case in point, five out of the seven “Magnificent Seven” stocks have moved higher following the U.S. elections, as of Dec. 11, 2024. Index earnings also reflect this positive backdrop, now forecast to increase nearly 17% in 2025.4
From our vantage point, it is difficult to predict a near-term resolution to potentially competing forces. Technology advances and beneficial policy changes could support continued multiple expansion and market concentration, but should this optimism begin to fade these factors could exacerbate downside market volatility. In our experience, changes in market sentiment often occur capriciously and without warning.
Given these uncertainties, our focus remains on the long term and building a portfolio of high-quality stocks trading at reasonable valuations.
Thus far in 2024, we have executed nine wholesale portfolio changes, adding new positions in Zoetis (ZTS), McDonald’s (MCD), Sherwin-Williams, Copart (CPRT) and Cadence Design Systems (CDNS) while exiting positions in Pfizer (PFE), Moody’s (MCO), Starbucks and Ball Corporation (BALL). These changes were all made with the goal of upgrading the Fund’s combination of business fundamentals and stock price valuation.
The table below shows the largest individual differences between the Quality Growth Strategy and the S&P 500 Index.
| Company | Ticker | Portfolio Weight | S&P 500 Index Weight | Difference |
|---|---|---|---|---|
| Accenture | ACN | 7.26% | 0.44% | 6.82% |
| Marsh McLennan | MMC | 6.35% | 0.22% | 6.13% |
| Stryker | SYK | 6.04% | 0.26% | 5.78% |
| Nvidia | NVDA | 0.00% | 6.66% | -6.66% |
| Amazon | AMZN | 0.00% | 3.81% | -3.81% |
| Meta Platforms | META | 0.00% | 2.46% | -2.46% |
Sources: Refinitiv Eikon and Jensen Investment Management, data as of 11/30/2024.
Accenture’s large relative weighting reflects our confidence in its long-term business fundamentals and what we see as a disconnect between those fundamentals and short-term investor sentiment. Accenture is an IT consulting company that benefits from entrenched relationships with the largest companies throughout the world. Its traditional mandates include cloud migrations, ERP implementations and cybersecurity projects. Enterprise spending on these projects has recently been below expectations due to previous overinvestment and budget competition from AI-related projects. However, we think the current share price represents an opportunity for patient investors as there are signs that this near-term weakness is abating and Accenture’s investments in AI capabilities position the company to leverage its expertise for future success.
Marsh McLennan (MMC) is a leading professional services firm, offering clients advice and solutions in areas of risk, strategy and people. MMC’s leading businesses include Marsh, the largest global insurance broker; Guy Carpenter, one of the leading global reinsurance brokers; and Mercer, the largest health and benefits broker, retirement advisor and outsourced CIO (Chief Investment Officer) service provider. MMC is a top Fund holding due to its quality business characteristics, including strong and durable customer relationships resulting in high retention rates and high switching costs.
The high-conviction position in Stryker reflects our favorable view of the company’s competitive positioning and accelerating growth prospects. The company has leveraged its innovation capabilities and longstanding customer relationships to gain market share in both orthopedic implants and hospital equipment, resulting in revenue and earnings growth trending ahead of long-term averages. Recent strength in Stryker shares reflects these trends and, as a result, we executed several profit-taking trims throughout the year. However, the remaining large Fund position is an example of “letting your winners run.”
The Fund does not maintain positions in shares of Nvidia, Amazon or Meta. After researching Meta, we concluded that it was a strong business but not a fit for the Fund due to the company’s significant capital commitments focused on unproven metaverse projects. Our preliminary research on Nvidia indicates, after recently qualifying for the Fund, it could be a future addition due to powerful competitive advantages and high-quality characteristics. Amazon does not qualify for our investable universe due to its inconsistent historical profitability.
Unwavering Investment Philosophy
In closing, we remain confident that unpredictable markets create opportunities for long-term investors focused on high-quality stocks. High-quality businesses often benefit from durable competitive advantages, steady free cash flow generation and attractive long-term growth opportunities. In an environment characterized by an uncertain macroeconomic outlook, we believe these high-quality attributes can provide business resiliency and tempered volatility via pricing power and financial flexibility.
The Jensen Investment Team remains confident in the strategy and process guiding our management of the Fund. Our goal remains the ownership of a portfolio of companies positioned to grow and accrue business value. We seek to participate in this value creation as investors via the long-term ownership of what we believe are fairly priced, high-quality stocks. We believe these attributes enable quality companies to generate business returns consistently above their cost of capital, ultimately resulting in shareholder value creation.
We are tremendously grateful for the ongoing support of our firm and investment strategies from our partners and clients. Thank you.
1 Source: https://www.cnbc.com/2022/12/23/why-everyone-thinks-a-recession-is-coming-in-2023.html, CNBC.com, 12/23/2022.
2 Quality Analysis is based on S&P Quality and Dividend Rankings which rates stocks on earnings and dividend consistency. Performance from Refinitiv Eikon. We classify stocks rated A- and above as high quality and stocks rated B+ and below as low quality.
3 Source: Refinitiv Eikon, data as of 11/30/2024.
4 Source: S&P Dow Jones Indices, data as of 11/27/2024.
Basis Point: Is a value equaling one one-hundredth of a percent (1/100 of 1%).
Cash Flow: The sum of the after-tax profit of a business plus depreciation and other non-cash charges.
Compound Annual Growth Rate (CAGR): The year-over-year growth rate of an investment over a specified period of time. The compound annual growth rate is calculated by taking the nth root of the total percentage growth rate, where n is the number of years in the period being considered.
Earnings Growth: The annual rate of growth of earnings typically measured as Earnings Per Share Growth.
Earnings Per Share (EPS): The net income of a company divided by the total number of shares it has outstanding.
Return on Equity (ROE): Is equal to a company’s after-tax earnings (excluding non-recurring items) divided by its average stockholder equity for the year.
S&P 500 Index: A market value weighted index consisting of 500 stocks chosen for market size, liquidity and industry group representation. The Index is unmanaged, and one cannot invest directly in the Index.
Standard Deviation (Std Dev): This statistical measurement of dispersion about an average depicts how widely a mutual fund’s returns varied over a certain period of time. Investors use the standard deviation of historical performance to try to predict the range of returns that are most likely for a given fund. When a fund has a high standard deviation, the predicted range is wide, implying greater volatility.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Click here to view performance information that is current as of the most recent month end or please call 800.992.4144.
Jensen Quality Growth Fund Class I Shares Performance (net of fees, as of 12/31/2024): 1 year 10.28%, 5 year 10.77%, 10 year 12.05%.
The Jensen Quality Growth Fund I Shares annual operating expense ratio is 0.60%.
Click here to view the Jensen Quality Growth Fund’s current holdings.
Jensen Quality Growth Fund Top 10 Holdings (as a percentage of assets, as of 12/11/2024): Microsoft 7.81%, Apple 7.69%, Accenture 7.36%, Intuit 5.91%, Marsh McLennan 5.89%, Stryker 5.80%, Alphabet Inc 5.60%, Mastercard 4.55%, Automatic Data Processing 4.28%, Pepsi 3.48%.
Fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. Current and future portfolio holdings are subject to risk. The information provided herein represents the opinions of Jensen Investment Management, and is not intended to be a forecast of future events or a guarantee of future results, and does not constitute investment advice.
The Jensen Quality Growth Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund. The prices of growth stocks may be sensitive to changes in current or expected earnings, may experience larger price swings and may be out of favor with investors at different periods of time. Mutual fund investing involves risk, and principal loss is possible.
The Fund’s investment objective, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company. To view the fund’s current prospectus, please visit www.jenseninvestment.com/growth-prospectus or call 800.992.4144. Read it carefully before investing.
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© 2025 Jensen Investment Management
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