After screening for a population of potential growth companies, Schoenstein narrows the list to 30 stocks by examining growth potential, free cash flow potential and current valuation. This concentrated approach combined with the ROE requirement has lead to low turnover in the portfolio. In the fourth quarter, no new positions were added to the portfolio. There weren't any outright sales of positions, either.
That investing style captures most of the upside in the market but not all of it. The Jensen Portfolio lagged not only in the fourth quarter but for all of last year, as the fund's annual return of 11.8% trailed the 15.1% return on the S&P 500.
"Traditionally, when the fund is sitting in an aggressive or high-growth environment -- when things are frothy -- we'll tend to capture a fair share of that return but we won't capture all of it," Schoenstein says. "We tend to capture a lot less of the downside. Capturing a good chunk of the upside and not as much of the downside together over a long enough period of time provides a benchmark-beating return."
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