Teamwork sidesteps the risk

So how does Jensen manage risk? With exacting research and collaboration.  

At most asset managers, analysts are charged with the heavy lifting of stock analysis, while portfolio managers take their ideas and construct the portfolios, deciding which stocks to purchase and how much to allocate to each. Those roles are distinct, and staff members stay in their lanes.  

Jensen is different. Collaboration is central to the way that investment decisions are made. Portfolio managers perform stock analysis and vote on which names to include. It is an intentionally deliberative process focused on long-term investment fundamentals as opposed to short-term market sentiment.  

“Our decisions are a consideration of everyone’s views,” says Bond. “We’re trying to take advantage of everyone’s individual ideas.”

It’s also a risk-mitigation strategy. No one person can consider every angle of an investment. But putting six minds together helps get them closer to that goal.

Collaboration at the core

The process starts by filtering out stocks that don’t meet Jensen’s strict quality criteria, which is a history of returns on equity of at least 15% per year for each of the past 10 years. After accounting for market cap and valuation requirements, the result is a universe of just 300 or so names to consider.

From there, members of the investment team divide up the names for further analysis. After weeks of analysis, the portfolio managers and analysts produce a 40- to 60-page report to share with colleagues. Then they debate the merits of each name. 

The back-and-forth can be intense at times, meant to find potential weak spots in everyone’s investment thesis. In order to include a name in the portfolio, the team must reach consensus. While painstaking, the method results in thoroughly vetted names that are unlikely to give shareholders nasty surprises.

“In many cases, the most charismatic person in the room will be the one that gets their way, even if that person doesn’t have the best ideas,” says Bond. “But our group approach makes sure that we get individual input so we’re tapping into a diverse range of thoughts.”

Bond’s fixed-income background gives the team yet another dimension for its decision-making.

Investments built for turbulent times

With the market in bear territory, investors are understandably concerned. Jensen’s risk-first approach is especially valuable now.

“The risk of investing has gone up,” Bond says. “Because the stock market is a leading indicator, it’s reflecting the concerns that a recession is pending.” 

Rather than try to duck into a defensive posture to try to avoid losses, Jensen continues to focus on quality stocks with competitive advantages and free cash flow that allows them to invest through difficult market conditions. To navigate the uncertainty, Jensen will do what it has always done: rely on thorough research by its team of analysts and portfolio managers.

Past performance is no guarantee of future results. The information contained herein represents management’s current expectation of how the Jensen Quality Growth Strategy 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 strategy and accounts invested in the strategy 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.

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