“We want to craft a portfolio that can participate in the long-term development of emerging markets, but that won’t impair capital permanently when times get tough. We’re therefore focused on financially sound, free-cash flow generative companies, denominated in currencies with a limited degree of external vulnerability.”
— Lewis Kaufman
Managing Volatility in a Way That Matters
Founded during the financial crisis when many emerging-markets stocks were down 40% to 60%, Thornburg’s strategy attempts to create a mechanism to participate in the long-term development of the emerging markets and manage volatility in a way that matters.
Growing Businesses Tied to the Emerging-Markets Consumer Class
We want to own a portfolio of promising, growing businesses that are tied to the growth of the emerging-markets consumer class.
Companies That Can Fund Their Own Growth
We are interested in firms that can fund their own growth without having to turn to external sources, companies that are less likely to suffer permanent loss and impair investors’ capital during times of market crisis.
Countries with Limited External Dependence
Because of the more volatile nature of the asset class, we pay particular attention to the economies in which we invest. We look for countries with positive current account and foreign direct investment numbers — those less reliant on volatile stock and bond flows.
In short, we also look for financially sound, free-cash-flow generative countries with limited external dependence.The Collaborative Approach of a Global Generalist
The portfolio is concentrated, with around 40-65 names, and is constructed by Lewis Kaufman with collaboration and input from managers and analysts across the Thornburg equity team, in accordance with Thornburg’s global generalist structure.
Lewis Kaufman has a bias towards higher-quality companies with a more conservative capital structure and does not believe he needs to go far out on the risk curve to capture the higher returns associated with the emerging-markets asset class.
A Focused Opportunity Set
We tend to avoid countries and economies with high external dependence, in part to limit the portfolio’s vulnerability to currency devaluations. This cautious approach to investing in countries where we may have some concern is, we believe, more effective than currency hedging.
Three-Basket Style Diversification
We employ Thornburg’s three-basket style diversification construct: basic values are financially sound companies with well-established businesses; consistent earners are companies with steady earnings, cash flow, or dividend growth; and emerging franchises are companies in the process of establishing a leading product, service, or market.
Diversification by Style, Currency,
Market Cap and Geography
- By style, using Thornburg’s basket construct
- By currency, with sensitivity to stability versus volatility
- By market cap, with meaningful portions devoted to small-, mid-, and large-cap stocks
- By geography, see the top ten countries under the portfolio tab above