2nd Quarter 2018

Download PDF

For the second quarter of 2018, Thornburg Global Opportunities Fund outperformed modestly, with a total return of 0.66% for the fund (class I shares), versus the benchmark MSCI All Country World Index (ACWI) return of 0.53%. This brings the fund’s first half result to negative 4.83% versus the index at negative 0.43%. After a difficult start to the year, the fund rebounded early in the second quarter; but external factors caused several portfolio holdings to slump in June, leading to modest outperformance for this three-month period.

We continue to manage the fund with a long-term orientation. Our relative underperformance over the past year has been unsatisfying, and we have made adjustments to the portfolio in 2018. Recall that Thornburg Global Opportunities Fund seeks capital appreciation from a focused portfolio of global equity investments. We believe the structure of the fund—built on our core investment principles of flexibility, focus, and value—gives us a durable framework for value-added investing.

Our framework has produced favorable results over the long term. From its inception on July 28, 2006, through June 30, 2018, Thornburg Global Opportunities Fund has outperformed the ACWI by an average margin of over 400 basis points (or 4.0%) per year. The cumulative result is a total return of 214.62% (for the class I shares) versus 98.16% for the ACWI. As of June 30, 2018, Morningstar ranks the fund in the top 1% of World Large Stock Funds, since inception in 2006 (based on total returns among 431 funds), and in the top 14% over the last five years, ending June 30, 2018 (based on total returns among 596 funds).

Cumulative Fund Performance Since Inception

Concerns regarding a global trade war were prominent in the quarter due to a series of actions by the U.S. and its trading partners. Political events in Europe also weighed on markets. JPMorgan estimates that the first round of the Trump administration’s tariff agenda impacts only about 0.1% of U.S. GDP and 0.2% of China’s GDP, while enacting more severe measures could affect nearly 30% of U.S. imports and around 4% of U.S. GDP. In both Italy and Germany, election results raised questions again about eurozone stability, while the U.K. government wobbled through its Brexit planning process. In connection with these factors, U.S. equities substantially outpaced the rest of the world in 2Q18 (Chart 2).

Second Quarter Equity Market Performance

From an industry perspective, seven of the 11 sectors comprising the ACWI delivered positive returns in the second quarter. Sector returns varied from negative 5.6% (financials) to positive 10.3% (energy). But for the fund, two notable areas of strength were internet holdings and industrials, specifically chemicals producers.

Facebook (discussed in this note last quarter) rebounded smartly from its previous underperformance and was our top contributor in the period. In May, the company reported healthy operating results, including user growth, in all four of its major geographic regions. Shares of China’s Baidu also snapped back as the company progresses with its streaming video and autonomous driving initiatives.

China’s efforts to rebalance its economy and improve its environmental standards have boosted our materials holdings, including CF Industries and OCI NV.1 For the past few years China has been systematically closing older, and dirtier, inefficient manufacturing plants in the chemicals and other sectors. Through May of this year, Chinese urea (fertilizer) exports were down 80% from the same period in 2015. Lower Chinese exports are tightening global supply/demand dynamics, supporting ex-China volumes and product pricing (Chart 3). Shares of CF and OCI each rose over 15% in the second quarter.

Fertilizer Trends

Our investments in Asia generally underperformed, partly due to macroeconomic factors. In addition to the U.S.–China trade tensions, a strengthening dollar and rising U.S. interest rates caused declines across the region—our investments in Galaxy Entertainment (Hong Kong) and Samsung (Korea) were affected.

Separately, in late June Amazon announced the acquisition of an online pharmacy and many stocks in the healthcare supply chain tumbled as investors “shot first and asked questions later.” Portfolio holding Walgreens Boots declined 10% the day the news was announced, but as of this writing it’s recouped the bulk of that fall.

During the quarter, we exited minor positions in real estate and financials, and trimmed our easyJet investment thanks to its price appreciation. We added to our investments in OCI and Capital One Financial. In conjunction with the broad market weakness in Asia, we initiated a new position in MGM China, one of the six licensed gaming operators in Macau. MGM China is debuting a new property on the Cotai Strip this year and could also benefit from the opening of the Morpheus hotel nearby, as well as the Hong Kong–Zhuhai–Macau bridge.

Contributors and Detractors

Relative to the index, the fund exited the quarter particularly overweight the materials and telecommunications sectors, and it was notably underweight in health care and consumer staples. Geographically, the fund is overweight Europe and Asia, although it has no direct exposure to Japan. Emerging markets investments comprise 14% of the portfolio. The average one-year forward price-to-earnings multiple of the companies owned in Thornburg Global Opportunities Fund stands at 13.6x, vs. 14.6x for the ACWI, while consensus estimates are for our holdings to grow earnings faster than the market in the years ahead.

Most macro-economic indicators around the world positively surprised in 2017 and the first half 2018, with the U.S. economy a standout in the past few months. U.S. non-farm payrolls reached an all-time high of 149 million in June. It’s possible that this U.S. vigor combined with uncertainties around Europe and globalization is what caused the U.S. dollar to reverse a 14-month trend and strengthen during the quarter. In spite of the trade tensions, global consumer spending is growing, and we expect people around the world will continue to buy goods and services, trading with one another.

Owing to strong recent data, earnings expectations for the MSCI All Country World Index for 2018 have improved in recent months, and expectations for global growth remain firm. These positive trends support the continued rotation of investor preferences from debt and defensive equity to more economically sensitive assets. The U.S. Federal Reserve has stepped up the pace of Federal funds target rate hikes, moving the target from 0.75% to 2.00% over the last six quarters. Most major central banks are pursuing easy monetary conditions, which artificially suppress interest rates.

It’s important to reiterate that our strategy for Thornburg Global Opportunities Fund is founded on fundamental analysis of individual businesses, not over-reliance on macroeconomic forecasts. We construct the portfolio, as always, on a diversified basis with risk mitigation in mind. We have managed the fund this way through a wide variety of macroeconomic settings since its inception in 2006.


1. Manish Kabra, cfa, Paulina Strzelinska, and James Wei, “European Fund Manager Survey – Growth Capitulation,” Bank of America Merrill Lynch, March 2018.

2. Holdings are classified by country of risk as determined by MSCI and Bloomberg.

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%.

Important Information
Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus or summary prospectus containing this and other information, contact your financial advisor or visit thornburg.com. Read them carefully before investing.

Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 6/30/18.

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.

Funds invested in a limited number of holdings may expose an investor to greater volatility.

The performance of any index is not indicative of the performance of any particular investment. Unless otherwise noted, index returns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. Investors may not make direct investments into any index.

Based on total returns before sales charges, Morningstar ranked the fund (I shares) in the top 97% for the one-year period, 14% over five years, and 17% over 10 years, among 872, 596, and 343 World Large Stock funds, respectively, as of 6/30/18. © 2018 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.

Altice USA and Altice Europe NV, Inc. have both been excluded from the calculation of the second quarter 2018 top contributors and top detractors due to a recent spin-off transaction that, because of the mechanics of the transaction artificially inflated/deflated those companies’ performance for the quarter.

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

Please see our glossary for a definition of terms.

Thornburg mutual funds are distributed by Thornburg Securities Corporation.

Thornburg Investment Management, Inc. mutual funds are sold through investment professionals including investment advisors, brokerage firms, bank trust departments, trust companies and certain other financial intermediaries. Thornburg Securities Corporation (TSC) does not act as broker of record for investors.