Investors often ask me how to build a portfolio that holds its own in down times but hands them soli...
A Focus on Growth and Longevity
02/18/2013 7:45 am EST
His strategy for picking companies with solid growth rates that have proven they can survive downturns has served Rob McIver of Jensen Quality Growth Fund well, and he explains his process more here.
Nancy Zambell: My guest today is Rob McIver, and he is the co-portfolio manager of Jensen Quality Growth Fund (JENSX). Thanks for joining me, Rob.
Rob McIver: My pleasure, Nancy. Thank you.
Nancy Zambell: Why don't you tell me about the investment strategy of your fund?
Rob McIver: The Jensen Quality Growth Fund offers investors what we believe is a unique "quality growth" investment strategy. For us, quality growth means that we're looking for all-weather companies that have stood the test of time in terms of business performance, and of course stock performance.
Essentially, from an investment universe of about 170 companies, we're looking to own companies that have at least a 15% return on equity for each of the last ten years. We think that screens a very high quality screen, and we're working to have about a portfolio of 30 companies.
Nancy Zambell: Is the market cap significantly large, or do you look at small caps also?
Rob McIver: Well, we certainly are market-cap agnostic. For liquidity reasons, we'll look for companies with a market cap of at least $1 billion. But typically, the companies that we own with this very high return on equity over a long period of time tend to be larger cap by nature.
Nancy Zambell: I understand from reading about the fund that you cap your limit on sectors at about 30%?
Rob McIver: That's correct. We tend to be sector agnostic at the start of the process. What we're looking for is to own the best quality companies, and we build the portfolio one company at a time.
We're absent from three sectors completely-specifically, utilities, which are too highly regulated to meet our high performance requirements; companies where there is just too much shareholder value destruction; and energy companies, where we simply are uncomfortable when the companies command the price points, because the markets essentially price their own product.
Nancy Zambell: Are there any particular sectors that are your favorites right now?
Rob McIver: We very much favor at the moment sectors that really see a real opportunity for growth. And those sectors tend to revolve around technology companies, global industrial companies, and some specific health-care companies.
Interestingly enough, also those companies that have a large degree of exposure to the faster-growing emerging markets, where we see the opportunity for growth much greater than perhaps in the developed economies of North America and Europe.
Nancy Zambell: It's interesting that you say that, Rob, because I was just at the World MoneyShow in Orlando last week, and I began hearing about emerging markets again. Do you have any particular stocks or countries that you like in particular?
Rob McIver: Certainly. The sense that we're hearing from our companies is that Asia is rebounding. Latin America is increasingly mentioned as a future high growth area, and some of the so-called frontier markets are beginning to be mentioned by our companies-countries like Vietnam or the Philippines.
One of our portfolio companies that is actually well entrenched in these faster growing markets is Colgate-Palmolive (CL).
Nancy Zambell: The big multinational.
Rob McIver: Yes indeed. Would you like me to share a little bit about Colgate?
Nancy Zambell: Yes, would you please?
Rob McIver: Certainly, Colgate is best known for being a global market leader in oral care and personal care. It actually accounts for 45% of the world's toothpaste market. It has the leading brands in toothpaste, not only in the US but Latin America. It's a market leader in China.
Interestingly, Colgate actually first expanded overseas in 1920s, laying the foundations to what has become one of the world's consistently profitable and innovative consumer product companies. It has sales in over 200 countries, and 78% of Colgate's sales are generated overseas.
We certainly like the very attractive future growth prospects. It's used its high cash flow to reinvest in the business, to buy back shares, and to pay a dividend consecutively for 95 years.
Nancy Zambell: What is its yield?
Rob McIver: The yield on Colgate at the moment is about 2.3%.
Nancy Zambell: That's pretty healthy. I don't think most people would consider an old, old company like that as a growth company, so that's really an interesting aspect of it. Plus, it pays a dividend, so you get a little bit extra on your return.
Rob McIver: Absolutely. Colgate is one of the many companies that demonstrates the all-weather business model that we talked about, in terms of making money for shareholders in good times and in bad-and, of course, paying shareholders a dividend while they're along for the ride.
Nancy Zambell: What can an investor expect in terms of return from your fund?
Rob McIver: Well, we are very much a long-term investor, Nancy. Portfolio turnover typically is about 15%, which on a portfolio of let's say 30 companies, is only two companies in and out of the portfolio every year. Our average holding period is about seven years, and that actually makes the fund very tax-efficient and commission-efficient for that long-term investor.
Nancy Zambell: Sure, that makes sense. Well, thank you so much Rob for joining me. It was a pleasure hearing about your company.
Rob McIver: Well, a real pleasure, too, Nancy. Thank you so much for the opportunity.
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