Quality Investing Strategy for Market Volatility
A Jensen Investment Perspective
As talk of tariffs, inflation concerns, and geopolitical tensions dominate headlines, markets have reacted unevenly. These periods of uncertainty naturally create investor anxiety, but at Jensen we maintain that investing in quality companies can be key in positioning portfolios to effectively navigate market turbulence. For us, quality businesses exhibit sustainable competitive advantages, demonstrate stable earnings growth, generate consistent free cash flow, and benefit from robust balance sheets. Historically, in periods of market uncertainty, high-quality companies have demonstrated resilience that may help manage portfolio volatility. While markets vacillate, Jensen’s approach remains steadfast and we maintain an unwavering commitment to the quality-focused investment process that has guided our firm for more than three decades.
The Current Market Environment
The first quarter of 2025 has been characterized by inconsistent policy signaling from Washington, fueling market fluctuations. This unease has contributed to increased market volatility across multiple sectors.
The rising cost of debt, combined with persistent inflation, has driven up the cost of everyday essentials like groceries and gasoline prices, creating a “double whammy” of higher interest rates and inflation that has eroded consumer sentiment and buying power. Enter tariffs, a new third layer of financial pressure that in many ways can be viewed as a de facto consumption tax.
These economic factors, coupled with ongoing geopolitical tensions, have created an environment where investors may feel like they can’t find steady ground.
The market rally of 2023 and 2024 was predominantly driven by momentum in a concentrated set of technology companies. Thus far in 2025, we have observed early indications of a rotation toward quality as investors adopt a more risk-averse posture following several years of positive market growth. While we refrain from market timing predictions, the increased volatility historically favors disciplined, quality-focused investment approaches.
The Quality Advantage in Turbulent Times
In our investment framework, a defining characteristic of quality is a company’s sustained ability to generate returns above its cost of capital throughout complete economic and market cycles. Companies with pricing power to navigate inflationary pressures, strong balance sheets with consistent cash flow generation, and experienced management teams may be best positioned to excel in favorable market conditions while demonstrating resilience during periods of market volatility.
While quality attributes can be overlooked when markets are surging upward, we believe that they become particularly valuable in “risk-off” environments when investors rapidly shift away from riskier assets toward higher-quality, less volatile investments due to market uncertainty.
Even amid the current volatility, we have identified signs of strength in many of our quality companies. For example:
Procter & Gamble (PG), in our view, benefits from brand equity and consumer loyalty across its portfolio of essential consumer products including Tide, Crest, Pampers, and Bounty. Consumer demand for these products tends to remain stable through economic cycles, which helps insulate the company from fluctuations in demand. Additionally, retailers recognize that removing these products from store shelves could put them at risk of alienating customers with strong brand preferences. Procter & Gamble’s pricing power and global distribution network provide further competitive advantages in the current inflationary environment.
Broadridge Financial Solutions (BR) maintains an entrenched position in financial market infrastructure, generating approximately 80% of its revenue through mission-critical services like proxy processing and fixed-income trade settlement. As with Procter & Gamble, we contend that Broadridge benefits from customers who rely on their services and who could incur substantial costs to switch providers. This inelastic demand has resulted in a high client retention rate as the business has demonstrated that stability can create predictable revenue streams regardless of broader market conditions.
Marsh McLennan’s (MMC) position as a global leader in insurance brokerage and consulting generates recurring revenue streams that we believe can persist through economic cycles. As a global broker in risk and insurance services and an adviser in health benefits and retirement planning, Marsh McLennan serves approximately 90% of Fortune 500 companies. The complex nature of Marsh McLennan’s (MMC) position as a global leader in insurance brokerage and consulting generates recurring revenue streams that we believe can persist through economic cycles. As a global broker in risk and insurance services and an adviser in health benefits and retirement planning, Marsh McLennan serves approximately 90% of Fortune 500 companies. The complex nature of their services and deep institutional relationships creates significant barriers to entry for competitors.
Taking an Active Approach
Our investment philosophy centers on a long-term investment approach emphasizing quality and valuation discipline. Our comprehensive understanding of each portfolio holding and of potential investment candidates results in a strategy designed for resilience across varying market environments. Our quality investing approach purposefully employs concentration as a strategic advantage. This allows us to be highly selective in our quality assessment and maintain deep knowledge of each holding, rather than diluting the portfolio with lower-conviction investments for the sake of diversification.
This active management offers the confidence that comes from truly knowing what you own, as opposed to the abstract exposure to broad markets inherent in passive strategies.
We recognize that periods of market uncertainty can unsettle even the most seasoned investors, but our experience through decades of market cycles has taught us, time and time again, that this too shall pass. We maintain our belief that high-quality businesses are well-suited to endure difficult economic periods and often emerge with strengthened competitive positions. Historically, these market disruptions have even created attractive opportunities to add quality companies to our portfolios.
Our Steadfast Commitment to Quality Investing
Our disciplined investment approach and commitment to identifying quality businesses remains unwavering. We believe this consistency serves as a true north when navigating volatile market environments, and our team welcomes continued dialogue regarding our investment approach or specific holdings. Thanks for your continued confidence in Jensen. We are tremendously grateful for your ongoing support and, as always, please do not hesitate to contact us with any questions you may have.
The company discussion in this article is solely intended to illustrate the application of our investment approach and is not intended as investment recommendations or an indication that that our investment decisions have been or will be profitable.
Past performance is no guarantee of future results. The information contained herein represents management’s current expectation of how Jensen’s Quality Growth investment 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.