Quick Take: Surviving downturns, even depressions, is the clearest sign of a quality company, says Theodore Parrish, co-manager of Henssler Equity Fund (HEQFX). Quality companies — based on independent rankings, management strength, and dividend yields — generate the best long-term returns, according to Parris. The manager says this approach pays off because quality companies hold up better in downturns and produce competitive returns in rallies.
The fund's returns suggest it has benefited from this strategy. This year through October 14, the fund rose 22.6%, versus a 20.9% gain for the S&P 500. For the five-year period through last month, the fund rose an average annualized 6.2%, compared with a gain of 0.7% for the average large-cap blend fund.
The Full Interview:
S&P: What are the main features of the fund's strategy?
PARRISH: Gene Henssler, the fund's founder, believes in financially strong companies that will survive the next depression, not just the next recession. We look at stocks ranked A- or better by Standard & Poor's and A or better by Value Line.
Our process is about 60% quantitative and 40% qualitative. We screen for financial management, interest coverage ratios, and high dividend yields. Liquidity is important, so we look for companies with 150,000 or more shares traded daily.
S&P: What qualitative criteria do you consider?
PARRISH: I like managements that communicate well with Wall Street. I pay attention to how management handles past difficulties. The companies we invest in have long histories, including previous recessions.
S&P: You look for companies that will survive deep downturns — but isn't that the case for most large-cap companies?
PARRISH: We've seen companies with deteriorating financials, such as J.P. Morgan Chase & Co (JPM). If a large company is in trouble, it's usually a slow deterioration.
S&P: Do you ever tilt toward growth or value, given that the fund is a blend offering?
PARRISH: We try to maintain a balance between growth and value. We aim for above-average growth and a beta lower than the market. We try to be less volatile, especially on the downside, so we can benefit from a flight to quality in down markets.
S&P: What is the fund's turnover?
PARRISH: It's about 22% annually. We look to hold stocks for three to five years. Over half of our 20 or so holdings have been in the portfolio since inception.
S&P: Would you mention a long-term holding that you continue to like?
