A mutual fund success story is hard to come by these days, especially a success involving an equity fund - a large-cap growth fund, no less.
But the Jensen Portfolio, managed by Jensen Investment Management of Portland, Ore., is one Lone Ranger that has defied the odds. Returning a negative 8.9% return year-to-date through Oct. 22, the fund is ahead of 97% of its peer funds, according to Morningstar of Chicago, and is in the top 1% of its peer group over the past one, three and five years.
Most impressively, the fund has earned a place of distinction as being the 10th-most successful fund in terms of attracting the most assets among all funds sold through institutional sales channels or a captive sales force so far this year through Aug. 31, according to Financial Research Corp. (FRC) of Boston.
Single-handedly, this sole no-load mutual fund with current assets of $577 million has raked in $512 million so far in 2002, putting it comfortably ahead of asset inflows into formidable competitors. That means Jensen beat such behemoths as SEI Corp. of Oaks, Pa., and both Salomon Brothers and Smith Barney Asset Management of New York. Those inflows, have put the Jensen Portfolio on the map.
While 10th place may not seem like much to celebrate, consider that the Jensen Portfolio is an only child, lacking any sibling funds and without either an elaborate wholesale or captive sales force. Moreover, it's a remarkable feat for a fund that was created to accommodate smaller client accounts, is only a decade old and only became registered in all 50 states 18 months ago.
In contrast, PIMCO Funds of Newport Beach, Calif., with a total of almost $302 billion under management and a stable of 68 stock and bond funds, pulled in a massive $19.6 billion so far this year, according to FRC.
In second place is the Evergreen Funds complex of Charlotte, N.C., which has seen inflows of $2.8 billion.
So what's the secret to the Jensen Portfolio's success?
"Part of the appeal of the fund is that it has a very simple story," said Val Jensen, chairman of Jensen Investment. "We like a business because it is a good business to own, then we buy it at a good price." The fund managers will only consider companies with good long-term track records and free cash flow that can be purchased at 40% or greater discounts. Only about 24 stocks make it into the portfolio.
"In three words: They are disciplined," said Langdon Healy, a Morningstar analyst. Jensen's methodology includes whittling down the universe of 10,000 stocks to some 130 companies with at least a 15% return on equity for each of the past 10 years and predicting which will sustain that level. Only stocks with free cash flow fly. Then, Jensen assigns companies intrinsic values and sells them as soon as those values are achieved, Healy explained.
"We haven't done anything differently, from an investment strategy, with the fund in the last 10 years," said Gary Hibler, president of Jensen. Even when investors were chasing tech and Internet stocks, Jensen stuck to its guns. "There's no other way we could do it. We know our investment philosophy works," said Robert Zagunis, also a principal of the firm.
The difference now is that direct investors, registered investment advisors, and fund consultants now have the Jensen Portfolio squarely on radar.
According to the firm, 50% of assets this year have flowed in through Charles Schwab's OneSource marketplace; more than half of that through the institutional platform. But a significant number of retail investors have found the fund all on their own, said Bob Millen, another Jensen principal, and a growing flow of assets are even trickling in through Schwab's retirement plan business, which Schwab wooed Jensen to become part of this past June. Similarly, almost one-quarter of fund assets have flowed in through Fidelity's supermarket, with 60% of those assets coming from retail investors, and 40% from financial planners. Jensen also inked a deal to be offered through Fidelity's retirement plan business two months ago.
"Managing the inflows is an absolute delight," Jensen said. The biggest challenges will likely come within the next six to 12 months, as the firm sorts through all of the opportunities and decides which are the best fits. Jensen has been happily inking new agreements to manage separate accounts, but has declined offers to sub-advise other funds and doesn't have plans to charge into the broker/dealer channel, where it believes it would get lost among the larger players.
"The biggest mistake you can make is going down the wrong path," Hibler added.