Thornburg Low Duration Income Fund

4th Quarter 2019

Jason Brady, CFA
Jason Brady, CFA
President and CEO
Lon Erickson, CFA
Lon Erickson, CFA
Portfolio Manager and Managing Director
Jeff Klingelhofer, CFA
Jeff Klingelhofer, CFA
Co-Head of Investments and Managing Director
Portfolio managers are supported by the entire Thornburg investment team.

December 31, 2019

Market Review

For the fourth quarter, the Bloomberg Barclays Intermediate Government/Credit Index returned 0.37%, while the broader fixed income market represented by the Bloomberg Barclays U.S. Aggregate Bond Index returned 0.18%. In general, 2019 was a strong year for fixed income investors. For much of the year, sovereign bonds reacted as one would expect to weaker economic data, with bond yields broadly tracking the manufacturing surveys lower. Central bank monetary stimulus appeared to achieve policy maker goals of boosting investor sentiment and lifted all boats. Such strong returns for both traditional risk-off and risk-on assets, at the same time, is unusual.

Fourth-Quarter 2019 Performance Highlights
  • During the fourth quarter, the Thornburg Limited Term Income Fund (I shares) returned 0.44%, slightly outperforming the benchmark. The fund returned 5.75% in 2019, underperforming the longer duration Bloomberg Barclays Intermediate Government/Credit Index return of 6.80%.
  • In this market, the portfolio benefited from its underweight in duration relative to the benchmark. The U.S.-China trade war dominated rate volatility during the quarter, with tit-for-tat tariffs likely contributing to a notably contractionary manufacturing PMI. Amid mixed economic data, the Fed cut rates a third time in October. In December, the U.S. and China reached a preliminary agreement on a trade deal, lifting risk assets.
  • A meaningful allocation to investment grade credit supported portfolio performance as credit spreads declined during the quarter from 153 basis points (bps) to 93 bps, despite higher leverage in the market and flat to weaker coverage metrics. Largely, we believe this to be the result of risk-on sentiment amid additional liquidity provided by global central banks. Corporate credit continues to provide investors with some additional yield in a yield-starved world.
Current Positioning and Outlook

Neither credit nor duration provide much compensation for investors relative to the potential risks. We believe defensive positioning is prudent given the asymmetrical downside potential for fixed income in a lengthy credit cycle. Last year was very good across the spectrum; 2020 is unlikely to be so indiscriminate and such high returns will likely be harder to obtain.

With this in mind, we continue to move portfolios up in quality—by rating certainly, but also largely by the defensive nature of a security’s underlying cash flows. We continue to favor the consumer over government or corporate paper, specifically ABS and MBS as consumer re-leveraging with unsecured and auto loans ticks up. Importantly, however, consumer balance sheets and general credit metrics remain strong due to a healthy job market and rising incomes.

Federal Reserve Chairman Jerome Powell stated in mid-December that the Fed intends to keep rates where they are until it sees “a significant move up in inflation that’s also persistent.” This clearly suggests policy tightening is a considerable time away. However, recent observations also tell us flip-flops are possible. If the global economy reaccelerates, bond yields may move higher, rather than fall as they did in 2019. Portfolio duration still sits toward the lower end of our historic ranges as a balanced approach to duration and credit risks is, we believe, key to success in 2020.

Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate so shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than quoted. For performance current to the most recent month end, see the mutual funds performance page or call 877-215-1330. The maximum sales charge for the Fund’s A shares is 1.50%.

Important Information

Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 9/30/19.

Investments carry risks, including possible loss of principal. Portfolios investing in bonds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds. The value of bonds will fluctuate relative to changes in interest rates, decreasing when interest rates rise. Unlike bonds, bond funds have ongoing fees and expenses. Investments in mortgage-backed securities (MBS) may bear additional risk. Investments in the Fund are not FDIC insured, nor are they bank deposits or guaranteed by a bank or any other entity.

The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management, Inc. This information should not be relied upon as a recommendation or investment advice and is not intended to predict the performance of any investment or market.

© 2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

There is no guarantee that the Fund will meet its investment objectives.

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Thornburg mutual funds are distributed by Thornburg Securities Corporation.

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