4th Quarter 2017

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For the fourth quarter of 2017, Thornburg Better World International Fund returned 7.08% (I shares), outperforming both benchmarks, the MSCI All Country World Ex-U.S. (ACWI Ex-U.S.) and MSCI EAFE indices, which returned 5.00% and 4.23%, respectively, during the period. Since inception, the fund has returned 15.30% (I shares), compared with the ACWI Ex-U.S. return of 15.09%.

Over the quarter, 10 of the 11 sectors of the ACWI Ex-U.S. showed positive returns, with performance ranging from negative 0.45% to positive 8.43%. The top three returning index sectors during the quarter were materials, energy, and information technology, while the bottom three performing sectors were utilities, health care, and telecom. Despite our underweight allocations to each of the top three performing sectors during the period, we were able to add 208 basis points of value in excess of the ACWI Ex-U.S., largely through stock selection. Ultimately, over full market cycles, we expect to add significant value through high active share and superior stock selection by proactive incorporation of environmental, social, and governance (ESG) issues within our investment framework.

Over the most recent period, and over the last year in general, our conservative positioning has hurt the performance of the fund during a period of strong market performance amid stretched valuations. However, according to Morningstar, the fund’s I shares is beating 97% of all 764 funds in the Foreign Large Blend category for alpha, a common measure of risk-adjusted returns, since inception for the period ended December 31, 2017. Additionally, the downside capture ratio for I shares for the same time period, at 52.35%, places the fund in the top 2% of 637 funds for the same category for that metric. We don’t expect to consistently outperform in rising markets, as we did in the most recent quarter, as our ultimate goal is to truncate downward moves for our investors. Additionally, Thornburg Better World International Fund is designed to be conservative and fare well during periods of volatility. This is achieved through our approach to investing in companies exhibiting attractive cash flow–based valuations, strong moats, and runways for growth as well as synergistic financial and ESG characteristics.

We won’t always be conservatively positioned. When the opportunities arise, we plan to take them.

Gender diversity is prominent among the wide range of ESG characteristics we pay close attention to during our analysis of potential investments. Recently, MSCI released its annual report on the state of women’s representation on corporate boards of directors, a continuation of the work begun by GMI Ratings back in 2009.1 As we mentioned in our second quarter of 2017 commentary, there is noteworthy evidence of increased financial performance by organizations with significant representation of women in the ranks of senior management and directorships. Some of the key findings of the report included the fact that women held just 17.3% of all directorships at companies within the MSCI All Country World Index as of October 2017, an increase from the 15.8% level of the previous year’s report. In a study from 2011 to 2016, MSCI found U.S. companies that started the period with three or more female board members saw median gains in return on equity (ROE) of 10 percentage points, and in earnings per share of 37%.2

We find the geographic breakdown of the report of particular interest as the discrepancies inform our strategy of diversification and ESG momentum.

According to MSCI, the vast majority of companies that have multiple female directors were based in Western developed markets, while companies with all-male boards were concentrated in Asian nations. As those familiar with our regional and country allocations will recall, Thornburg Better World International Fund has a sizable allocation to countries within Asia. For example, our holdings in emerging Asia and Japan represented an average of 21% of the portfolio during the fourth quarter. Within our Japanese companies held during the period, two of those organizations currently had no women representation on the board of directors. While it is important for us as international investors to recognize the cultural differences that can lead to sparse representation of women directors in some geographies, we continue to encourage the improvement of diversity metrics in portfolio companies through our engagement with management teams.

Looking for improvements in gender diversity doesn’t end with portfolio companies. As we take a closer look at various issues that affect potential investments, we also turn a critical eye toward our own operations. Within Thornburg Better World International Fund, our team is home grown from those within Thornburg’s equity division who happened to be most passionate about ESG. Unfortunately, today it is all male. Looking forward, we would like to see more female representation within the fund and equity division in general. As regular readers of our commentary are aware, the asset management industry lacks sufficient female representation, which is why we support initiatives such as the CFA Institute’s Women in Investment Management Initiative. Over time, we aim to see improvements in our own fund, firm, and the industry at large.

Unlike the “best-in-class” approach applied by many within the space, we screen-in companies that are on the road to improvement. We consider opportunities that may not satisfy all of our ESG criteria at the moment, but which demonstrate a clear path to doing so. We ultimately focus on ESG momentum, including in gender diversity. There is a strong correlation between company improvement and superior stock performance, and we want our investors to potentially benefit as they work in tandem.

We strive to provide a high total return through the cycle by investing in high-quality, attractively priced companies that we believe have a sustainable competitive advantage, while also having a positive impact on the communities they serve. Our research is enhanced by integrating financial and ESG considerations. We believe markets typically undervalue the risks and opportunities presented by environmental, social, and governance factors, both in terms of the timing and the magnitude of outcomes. Over the long-term, we view this process as a superior way to invest hard-earned client capital. Since inception, the investor needs to examine the risk-adjusted returns to see the fruits of this work; through the cycle we expect absolute return will demonstrate the benefits as well.

Thank you for investing alongside us in Thornburg Better World International Fund.


1. Women on Boards: Progress Report 2017, MSCI, December 2017.

2. The Tipping Point: Women on Boards And Financial Performance, MSCI, December 2016.

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 4.50%.

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Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 12/31/17.

Investments carry risks, including possible loss of principal. Additional risks may be associated with investments outside the United States, especially in emerging markets, including currency fluctuations, illiquidity, volatility, and political and economic risks. Investments in small- and mid-capitalization companies may increase the risk of greater price fluctuations. 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.

Any securities, sectors, or countries mentioned are for illustration purposes only. Holdings are subject to change. Under no circumstances does the information contained within represent a recommendation to buy or sell any security.

Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.

Based on risk-adjusted returns before sales charges, Morningstar ranked the fund’s alpha (I shares) in the top 12% for the one-year period, among 745 Foreign Large Blend funds, as of 12/31/17. Morningstar displays the upside and downside capture ratios over one-, three-, five-, 10-, and 15-year periods by calculating the geometric average for both the fund and index returns during the up and down months, respectively, over each time period. For the one-year period ended December 31, 2017, the relevant benchmark MSCI All Country World ex-U.S. Index generated a positive return in each of the 12 months during the year. Therefore, a one-year downside capture ratio is not applicable for Better World International Fund for 2017.

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