By Paul R. La Monica

Consistently beating the stock market over a 10-year stretch is a notable achievement. But what superlatives describe an investing strategy that has outperformed the S&P 500 for half a century? Heroic, perhaps? First responders in the Tampa Firefighters & Police Officers Pension fund probably think so.

The stock investments in this Florida pension fund have enjoyed an average annualized return of 14.5% since 1974 through the end of September, the conclusion of its most recent fiscal year. The S&P 500 has posted annualized returns of 12.5% during the same time.

The pension fund's overall performance is a bit lower due to about a 25% weighting in bonds and other assets. But even with that fixed-income component, the total portfolio has gained 11.8% a year on average. The fund's market value has mushroomed from just $12.1 million 50 years ago to $3.2 billion as of September. And, even more remarkably, the fund has been managed the entire time by the same firm: Bowen, Hanes & Co.

Harold "Jay" Bowen III, president and chief investment officer of the Ponte Vedra Beach, Fla.--based money manager, has run the fund since 2000, when he took over management duties from his father, Harold J. Bowen Jr. Jay Bowen tells Barron's that he has stuck to the tried-and- true strategy that his father, who died in 2018, espoused: buying and holding quality stocks as well as some bonds to help smooth out returns over the long haul. They call it the "Tampa Model."

"If you're investing for an individual or hedge fund, you can take more risks. But for a defined benefit pension fund, we err on the side of being cautious and conservative," Bowen says. "We want traditional assets. We're conventionally unconventional."

Bowen, 63, spoke to Barron's on July 15 about his views on the markets and why his firm's ultralong-term investing approach has paid off. An edited version of the conversation follows.

Barron's : How has the fund been able to perform this well for such a long time?

Jay Bowen: We are in the midst of our 51st year as the sole manager for the Tampa Fire & Police Pension fund. The key is to focus on the long-term and not worry about the day-to-day, month-to-month, or even year-to-year moves of the market.

We position our portfolios accordingly based on themes. Back in the 1970s, when my father forged our relationship with the Tampa fund, there were a lot of issues on the monetary and fiscal fronts regarding inflation. But we were on the precipice of big changes in the early 1980s. So, from a top-down standpoint, it was really an ideal time to focus on certain industries. We moved into the '80s with an emphasis more on the emerging global economy.

The fund's picks are top-down and thematic. We look far ahead, and sometimes we are going to be early. But we want to take advantage of companies with strong, integrated business plans. In the 2000s, there was a change for us because some of our biggest holdings were commodity companies. We typically own 40 to 50 common stocks. They may all be tied to one explicit top-down theme. But we look for places to emphasize, and then it's a bottom-up approach to find the best stocks from a relative valuation standpoint.

You describe your strategy as "endurance investing." How long do you typically look to hold a stock?

We are constantly justifying the holdings in the portfolio. We have to sell other names to buy new stocks, so we're constantly trying to find better opportunities. Sometimes we let a position go not because anything is fundamentally wrong with the company, but because to buy something else we need proceeds. Still, we will ride through a whole host of periods.

We always feel like we are taking a 20-year investment approach. With 20 years, you can measure the competency of an investor. A lot of people can look good in bull markets or bear markets if positioned properly. But over a 20-year time horizon, you're likely to have bull and bear markets, a recession, wars, and bubbles. Our investors have bought into this approach.

You choose to focus only on high-quality stocks and bonds and avoid so-called alternative investments. Why is that? Have you been tempted at all to invest in assets like gold and crypto, given their recent outperformance?

It always had been my father's approach and mine to own quality stocks for the long term. What has powered the portfolio for 50 years are equities. My father felt that these alternatives are risk assets, and we're taking enough risk already with our equity investments. That's why with our bondholdings, we aren't taking on much risk. We focus on investment grade.

As for alternatives, the best way to play that -- whether it's real estate or private equity -- is through the public markets. One of our biggest holdings is Blackstone. It's a great company, and we can be out of the position in five minutes if we wanted.

With real estate, it's the same thing. We can own REITs [real estate investment trusts]. For commodities, we have a position in Cameco, the Canadian uranium company. We also own Wheaton Precious Metals.

But we have no alternatives and no crypto. With crypto, it's difficult to obtain an intrinsic value for Bitcoin. I have nothing against it, but for a defined benefit public pension plan, I don't see the need to venture into that space.

How challenging has it been to invest in stocks and bonds recently, given the volatility in the market? Do you remain optimistic?

This year has been an extraordinary period to invest, particularly the first quarter. There was maximum uncertainty. But we became very bullish earlier this year and didn't change our tune in the first quarter.

We're seeing that unfold and be rewarded to some extent with the budget bill behind us. It's important that the legislation had permanent and immediate expensing of business fixed investment. Many people focus on the importance of consumer spending, and that is the case over the short term. But capital spending and investment is a key driver of earnings over the long term. We may now be in the front end of a productivity boom, and a lot of our core holdings fit into that theme.

Artificial intelligence is one of, if not the most, important themes driving the market lately. Is there too much hype, or will it really change the economy?

Artificial intelligence is the fourth industrial revolution. It reminds me of the 1990s with the internet. It's not exactly the same, but this high-tech productivity boom that is anchored by AI is highlighted by a lot of innovation.

In the mid-'90s, you had the Four Horsemen: Intel, Dell, Microsoft and Cisco [Systems]. If you didn't own those stocks, you were done -- and we didn't. But that bubble ended badly with the tech crash. It's not exactly the same now with the Magnificent Seven, though.

Nvidia is the way we've chosen to play this. We bought Nvidia back in 2019, and we continue to scale it back as it keeps going up. We've taken profits and it's still our biggest holding.

What other stocks do you like?

Another name tied to the AI theme, but a little less directly, is GE Vernova. It's a more diversified play on rising, robust power demand. They recently expanded a deal with Amazon.com.

The company's gas turbines are sold out through 2028, and it has a $60 billion backlog

You look at it, and it trades at more than 70 times earnings, so I wouldn't be surprised to see consolidation. But we're still enthusiastic about it for the long term. It's a great example of a core holding fitting into a top- down theme.

Corning is another one. It was a backbone of the internet in the 1990s because of [optic] fiber. Now, all these decades later, Corning is part of the AI revolution. Optical communications are key. It's an AI/data-center play and critical for AI buildout. Corning just announced a deal with Broadcom to supply more processing power for data centers. Hyperscaler customers really need new-gen AI fiber connectivity.

Corning is a strong growth story, an American manufacturing jewel dating back to 1851. It's amazing that this company, 30 years after the internet, is at the heart of this other industrial revolution. It's a financially healthy company with robust free cash flow and it still pays an attractive dividend that yields more than 2%.

We see that you like Union Pacific, too. How does a railroad fit into the 21st century economy?

What we like is that Union Pacific will be a beneficiary of the ramp-up in industrial production and onshoring and higher demand for construction products. But there are also serious and high barriers to entry. It's nice to find a company with that strong of a competitive moat.

It also has a really good diversified revenue base. Union Pacific is financially strong and its margins are expanding. We like these free cash flow generators. It's a core holding in the transportation area.

How much responsibility do you feel to ensure that the pension fund remains a safe place for its investors? Do you try to be even more careful managing the money of first responders versus other clients?

My father always instilled in me, and I can remember this from day one on the job, that these are public safety employees. You don't want to take a lot of risk with their money. But the beauty is that if you focus on the long term, you don't have to take on that much risk, thanks to compounding.

We want to make sure the money is there for retirees. We've done our job for them, and in a conservative fashion. We might have some individual clients who want to be more aggressive, but typically our clients are philosophically compatible. There's not that much difference in approach. They don't want to take a lot of risk outside of traditional stock and bond investing models.

Thank you, Jay.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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