Since last year's interview, Zagunis says, he and his Jensen Quality Growth Fund have added to some of their holdings, companies such as Procter & Gamble and Medtronic, but sold only one major position: Laboratory Corporation of America Holdings.
The main reason? Changes rendered by President Obama's Affordable Care Act, known as Obamacare, and a new government report outlining the need to cut lab costs.
"We sold LabCorp as we anticipated pricing pressures by government decree," Zagunis says. LabCorp does "a lot of Medicare and Medicaid business. Now, the government is asking for lower prices. Volume is important, and so are the margins on that volume. The impact was so unclear, so we sold our position."
In short, he says, "the politics changed."
Medicare is the largest payer for clinical-laboratory services in the nation. It spent about $8.2 billion for lab tests in 2010, which accounted for 3 percent of all Medicare Part B payments, according to a Department of Health and Human Services inspector general's report in June. Prior to that evaluation, there had not been a comparison of Medicare payment rates with those of other health-care service payers.
In his report, Daniel Levinson, the HHS inspector general, wrote: "The lab test payment rate structure is outdated and should be changed." (See the full report at http://1.usa.gov/18VOiJ.)
Quest Diagnostics Inc. and LabCorp, the two largest lab-services companies in the United States, each receives at least 15 percent of its annual revenue from Medicare, according to Bloomberg data.
In the broader stock market, Zagunis notes, "the correlations have decoupled. Europe has decoupled from the U.S., China from the rest of the world. There's more of a stock-portfolio effect going, and more stability [in the markets] as each country addresses its own problems."
Among Jensen fund's portfolio companies, "there's softness in the top line [sales], but cash flows remain very good," he says.
Jensen Quality Growth Fund's other top holdings as of June 28, the most recent filing available, include companies such as 3M, United Technologies, PepsiCo, Oracle, Omnicom Group (which recently announced a merger with Publicis, its biggest rival), Automatic Data Processing, Colgate-Palmolive, Microsoft, and Praxair.
Disaster proofing. Speaking of hurricanes and storms, Charles Schwab branch manager Ivor Mills recommends disaster-proofing your financials and important documents.
Put together an "evacuation box," Mills says, and include records or copies of passports, proof of residence, Social Security cards, wills, and some petty cash "in case the bank machines stop working."
One of his clients had a summer house at the Jersey Shore, and when Sandy hit, "they didn't have an electric bill to be allowed back on the island." Another client's basement flooded, their important documents were ruined, and attorneys had to redraw the papers, a needless expense.
"Keep copies elsewhere - outside the home or somewhere safe," he advises.
Erin Arvedlund is a finance reporter and a Philadelphia resident. Contact her at email@example.com or at 646-797-0759.