Fund Manager Who Could Care Less About the Election Outcome…
It’s comforting to find a portfolio manager who ignores the noise of the markets, and, these days, the political screaming. Many investors are gaming Tuesday’s election results, but not members of the Jensen Funds team.
Perhaps it’s because they are based in the Pacific Northwest, but the Jensen Funds portfolio managers don’t give a hanging chad about who’s in the White House or which party controls Congress.
I caught up with one of the firm’s founders and portfolio managers, Robert Zagunis, because he was stuck in Philadelphia during Hurricane Sandy. He flew into town for a reunion feting University of Pennsylvania and Olympic rowing coach Ted Nash. (For those like me who didn’t know Nash, he’s a two-time Olympic medalist and longtime Penn and U.S. National Team coach to America’s rowers since the 1960s.)
Zagunis hails from Oregon and still lives there, but he graduated from Stonier Graduate School of Banking at the University of Delaware in 1988. And that isn’t his only tie to this area: Zagunis trained under Nash for the 1976 U.S. Olympic rowing team.
Regarding the Jensen Quality Growth Fund (JENSX), Zagunis explains that there are investors like him and his partners who operate with little regard to Washington politics.
Jensen Funds screens for companies above $1 billion in market capitalization and a return on equity of 15 percent or more for each of the last 10 years. The higher the return on equity, the better, as high ROE companies produce more earnings and free cash flow that can be used to support a higher level of growth and keep the companies financially strong.
Jensen Funds will sell if company fundamentals deteriorate below a 15 percent return on equity, if the stock hits a certain price target, or if it is displaced by a better investment.
It’s refreshing to see an outfit that couldn’t care less who is president. The fund outperforms in bear markets and lags in bull markets, but its hallmark is low turnover – in the single to low-double-digit percentages – almost unheard of in this heavy trading age.
“Our average holding period is seven years,” Zagunis said in an interview.
Jensen Growth Fund’s long-term record outpaced more than 80 percent of its peers over the last 15 years, based on Morningstar’s mutual-fund database. As of Sept. 30, the fund owns the following: PepsiCo; Oracle Corp.; 3M Co.; Microsoft Corp.; Abbott Laboratories; United Technologies; Colgate-Palmolive; Omnicom Group; Cognizant Technology; T. Rowe Price Group; Becton Dickinson; Automatic Data Processing; Accenture P.L.C.; and Adobe Systems.
I’ve written about next year’s scheduled tax increases before, but the Wilmington accounting firm Master Sidlow Associates sent an alert as a reminder. When planning for the new 2013 Medicare taxes on investment income (3.8 percent for investment income exceeding $250,000 for joint filers or $200,000 for single taxpayers), there are some strategies to minimize the effect on your portfolio.
First, what is net investment income? Interest, dividends, annuities, royalties, and gains from the sale of property in an investment portfolio are treated as investment income. It does not include salaries and wages, distributions from IRAs or qualified retirement plans, gains on the sale of an interest in a partnership or S corporation, tax-exempt income, or capital gain from the sale of a personal residence.
To minimize this 3.8 percent surtax, you can sell in 2012 any bonds that would accrue interest and book the gains this year instead of next year, when tax rates are scheduled to be higher.
“Harvesting gains in 2012 would more than likely create a lower tax liability but would involve the gain recognition earlier,” Master Sidlow wrote in a note to clients.
Investors also can purchase municipal bonds, convert traditional IRAs to Roth IRAs before year’s end, or restructure income-driven, taxable portfolios into growth-driven portfolios.