Portfolio Managers Brian McMahon and Matt Burdett discuss the evolving macro backdrop, portfolio positioning, and how income and fundamentals continue to drive long-term returns.
Q: What is shaping the macro environment, and how should investors think about it?
Brian McMahon:
Geopolitics is front and centre, particularly the Iran conflict and its impact on energy markets. The disruption to global oil supply has driven a sharp increase in prices, feeding through into inflation and creating a more complex backdrop for central banks.
We are also seeing some moderation in growth expectations and a slowdown in the US labour market. Earnings forecasts remain broadly intact, although I would expect some companies to guide more cautiously in the coming quarters.
That said, these are cyclical pressures. They do not change our long-term approach. Our focus remains on identifying businesses that can grow earnings and cash flow across a range of environments.
Q: The Fund has delivered strong performance. What has been driving that, and are fundamentals supporting recent gains?
Brian McMahon:
It has been a strong period, both in terms of capital appreciation and income growth. In fact, the quarter was one of, if not the strongest, relative performance periods we have delivered in the Fund’s history, which was a positive outcome for our clients.
Performance has been driven by disciplined stock selection and a focus on companies with durable cash flows. Dividend growth remains broad-based across the portfolio and continues to be an important contributor to total return.
We are also seeing strong earnings delivery across a number of holdings. In semiconductors, Taiwan Semiconductor Manufacturing Company and Samsung Electronics have reported robust growth, supported by demand for advanced chips and memory. Broadcom Inc. continues to benefit from its exposure to data infrastructure and connectivity.
In energy, companies have been supported by higher commodity prices, while financials are seeing a more constructive earnings backdrop, assuming credit conditions remain stable. More broadly, there has been a shift in market leadership towards businesses generating earnings and cash flows today, which has supported our approach.
Performance was not uniform across the portfolio. A small number of holdings detracted during the quarter, including ING Groep, Medtronic plc, Equitable Holdings and Broadcom Inc., although the impact from each was modest.
In some cases, including Broadcom, this reflects the difference between strong underlying earnings and shorter-term share price movements. These moves were largely driven by market dynamics and positioning rather than a deterioration in fundamentals.
Q: How are you positioning the portfolio today?
Brian McMahon:
Over the past year, we have increased exposure to communication services, technology and industrials, while reducing exposure to healthcare, utilities and, to a lesser extent, financials.
The portfolio remains globally diversified, with a majority of exposure outside the US. We continue to see attractive opportunities internationally, supported by relative valuations and, at times, currency dynamics.
For example, our largest holding, Orange S.A., reflects our preference for businesses with recurring revenue, strong market positions and the ability to grow cash flow over time.
Q: How do you think about volatility and the recent market rally?
Brian McMahon:
Volatility is part of the process. Many of our holdings have experienced meaningful share price declines at various points, even while their underlying businesses continued to grow.
For instance, Orange S.A. declined significantly during the Covid period despite continued growth in its customer base. Similarly, Taiwan Semiconductor Manufacturing Company and Samsung Electronics have both experienced periods of sharp drawdowns, even as their long-term competitive positions strengthened.
We anchor our decisions in earnings, cash flow and balance sheet strength. If those remain intact, periods of weakness can create opportunities to add to positions at more attractive valuations.
Matt Burdett:
The recent rally is difficult to attribute to fundamentals. It appears to have been driven more by technical and systematic factors, with relatively low trading volumes.
That raises questions about durability. Rather than reacting to short-term market movements, we remain focused on company-level fundamentals and long-term value creation.
Q: How has the strategy performed across cycles, and what role does income play in total return?
Matt Burdett:
The key takeaway from the long-term track record is consistency. Over more than two decades, the strategy has delivered positive outcomes across a wide range of market environments, including higher-rate environments like today.
Income is a critical component of that. Over time, dividends have been a meaningful contributor to total return, particularly in more challenging markets.
Our objective is not just to deliver yield, but to grow that income stream. That compounding effect can be powerful and helps support more resilient outcomes across cycles.
Q: How do you think about dividends versus buybacks?
Brian McMahon:
Dividends are central to the strategy. We are looking for companies that can provide a consistent and growing income stream.
Buybacks can be attractive, particularly alongside dividends, but companies that rely solely on buybacks are generally not a fit for this portfolio. In some cases, such as Broadcom Inc., we have benefited from both growing dividends and share repurchases, which together support long-term shareholder returns.
Q: European equities have been more sensitive to recent volatility. How are you thinking about the region?
Matt Burdett:
We do not take a top-down regional view. Our focus is on the individual companies we own and how they are positioned within their industries.
In Europe, we have exposure to telecommunications and financials. Companies such as Orange S.A. operate in essential infrastructure with relatively stable demand, even in more challenging environments.
In financials, businesses such as NN Group benefit from supportive yields and improving rate dynamics, including a steepening of the euro curve. The key risk we are monitoring is the broader economic backdrop and its potential impact on credit conditions.
Q: How are portfolio companies adapting to structural trends such as AI?
Matt Burdett:
We are looking at AI in two ways: how it improves productivity within businesses, and where it is driving demand for infrastructure.
NN Group is a good example on the productivity side. The company has been investing in machine learning for several years and is now seeing meaningful efficiency gains, with the potential for sustained cost savings.
On the infrastructure side, we have exposure to companies such as Broadcom Inc., Taiwan Semiconductor Manufacturing Company and Samsung Electronics, which are central to the build-out of AI-related computing and memory capacity.
The key is that we are not investing in AI as a theme in isolation. We are focused on companies where these developments translate into sustainable earnings growth and cash flow.
Learn more about the Equity Income Builder fund here.
Discover more about:
Related Content
More Insights
Thornburg Income Builder Opportunities Trust Announces Distribution
Beyond the Benchmark: Finding Global Opportunities
Is This a “Mic Drop” Moment for Private Credit? What Actually Matters Now
Thornburg Investment Income Builder Fund – 1st Quarter Update 2026
A Disinflationary Paradox of High Oil Prices