Robert Millen of the Jensen Fund

“If you pick the right companies and you have fewer of them, then each has the potential to have greater impact on your performance,” Millen says. But, he adds, “that can work both ways. It can be up or down, and we’ve had cases where it’s been down.”

The short list of stocks the managers choose from doesn’t change much from year to year, according to Millen. The fund’s composition, too, seldom changes, he says. The portfolio’s turnover rate over the years has averaged less than 15%, he says.

Two relatively new additions are consumer products giant Colgate-Palmolive (CL), which the fund bought last September, and drug maker Johnson & Johnson (JNJ), a May, 2002, investment. Millen says he and his colleagues had wanted to own both for a long time, but until the market’s decline last year their stocks had been too expensive.

Colgate-Palmolive stands out because of its well-known brands, such as Ajax cleansers and Science Diet pet foods, Millen says.

Millen says he likes Johnson & Johnson, which he calls “one of the best managed companies in the world,” because its historical and projected growth rates are in the mid-teens.

Stocks of health care companies like Johnson & Johnson accounted for about 29% of the fund’s holdings at the end of the second quarter, Millen says. It’s No. 1 holding at that time was Stryker Corp (SYK), a manufacturer of surgical equipment and medical products, including orthopedic implants.

“It’s almost a recession-proof business,” Millen says of Stryker, whose profits he expects to increase by 20% or more for the next ten years.

The fund’s second largest holding on June 30 was pharmaceuticals manufacturer Pfizer, Inc (PFE).

Millen notes that as a result of the company’s purchase of Pharmacia in April it has ten of the 30 best selling drugs in the U.S., including its Lipitor cholesterol lowering medication. He envisions Pfizer generating earnings growth in the mid-teens in the next decade.

The fund’s other investments in the sector included drug companies Abbott Laboratories (ABT) and Merck & Co (MRK), and medical device maker Medtronic, Inc (MDT).

The performance of its health care stocks has been mixed this year, Millen says. Stryker has risen 20%, but the drug makers have not done well, he says. The lackluster results of this portion of the portfolio was one reason why the fund has trailed its peers this year, Millen notes.

The portfolio’s limited exposure to information technology stocks, which have been boosting the market lately, has also hurt the fund, the portfolio manager says.

The fund typically does not invest heavily in these kind of companies, Millen says, because for the most part they are too young to have the financial track records it focuses on. Many have not moved into the black yet, he says.

The fund does own two stocks that Millen notes can be classified as information technology holdings: Automatic Data Proc (ADP) and Paychex Inc (PAYX), which use computers to process payrolls and data for companies.

“It’s not so much that we have companies that aren’t performing, because we do,” Millen says of the fund’s returns this year. “It’s more that we’re just not in some of those companies that have been driving the indexes this year.”