1st Quarter 2018

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For the first quarter of 2018 Thornburg Global Opportunities Fund underperformed, producing a total return of negative 5.46% (I shares) versus a negative 0.96% return for the benchmark MSCI All Country World Index (ACWI). This was an unsatisfying period, and we are working to improve the outcomes. In this effort we remain intent on adapting to market conditions and executing our investment process, which has produced favorable results over the long term. 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.

The fund’s performance over longer time periods has been constructive. From its inception on July 28, 2006, through March 31, 2018, Thornburg Global Opportunities Fund has outperformed the ACWI by an average margin of over 400 basis points (or 4.0%) per year, resulting in a total cumulative return since inception of 212.54% (I shares) versus 97.11% for the index.

The fund’s cumulative return since inception is shown below.

Global Opportunities Cumulative Fund Performance Since Inception

Following the steady price appreciation and calm of 2017, the early months of 2018 have featured significant volatility—recessionary fears, trade conflicts, and political uncertainty have all played a role. Global equities were marked down by approximately $5 trillion from February 1 to February 9, and one measure of S&P 500 volatility rose about threefold. This hampered our own investing efforts and dragged on all bourses. The U.K. was the worst-performing market in the quarter—in fact, a recent Bank of America survey indicated that the U.K. is currently the most avoided market (i.e., underweighted) by institutional investors, and more underweighted than at any time since the survey began in 1999 (see chart 2).

Global Opportunities Cumulative Fund Performance Since Inception

From an industry perspective, nine of the 11 sectors comprising the ACWI delivered negative returns in the March quarter, with only consumer discretionary and information technology stocks showing modest gains. Particularly weak sectors were consumer staples, telecommunications, and materials, which all declined by more than 3%. Weakness in these areas, as well as idiosyncratic factors covered below, impacted our Global Opportunities portfolio.


easyJet plc UK
Galaxy Entertainment Group Ltd. China
Helmerich & Payne, Inc. USA
Ryanair Holdings plc Ireland
Wynn Resorts Ltd. USA
Contributors listed in alphabetical order.


Altice NV Netherlands
Colony NorthStar, Inc. USA
Facebook, Inc. USA
Mineral Resources Ltd. Australia
Walgreens Boots Alliance, Inc. USA
Detractors listed in alphabetical order.

Altice and Colony NorthStar were two of our largest decliners in the quarter. Recall that Altice is a Dutch-listed telecom group, which we addressed in this note last quarter; recently a very weak European telecom sector has also weighed on Altice shares. Colony North- Star was a frustrating holding and warrants some discussion. Colony is a diversified real estate company formed by the 2016 merger of Colony in Los Angeles and NorthStar in New York. We were attracted to the company based in part on its valuation (priced at discount to net asset value), cost savings opportunity, and stated plan to swiftly streamline and upgrade its portfolio. However the company’s progress was too slow, and its recent report fell well short of our expectations. As of this writing, we no longer hold Colony NorthStar.

Facebook dropped sharply in March following an exposé in the U.K. press that British consultancy Cambridge Analytica improperly gained access to users’ information in 2014 to build profiles of millions of American voters that were later used in President Trump’s election campaign. This triggered a well-publicized backlash over how the tech giant handles users’ privacy, and many lawsuits. The company did itself no favors with its initial delayed and modest response to the outcry. Subsequent surveys and data suggest that trust in Facebook has taken a blow while user engagement seems resilient. “Desktop, mobile, and app usage has remained steady and well within the expected range,” reported SimilarWeb, a firm that tracks internet audiences. We will monitor this closely.

Mineral Resources’ stock price fell in sympathy with the materials sector and company guidance for reduced iron ore output in 2018. The value of Mineral Resources has shifted notably away from iron ore mining in favor of lithium ore production and the firm’s traditional mining services activities in the last two years, and we expect this to continue. The outlook for lithium demand is bright, as electric vehicle battery and power storage battery end markets grow. Mineral Resources appears to have high certainty of supply, though its ultimate position on the global cost curve is unclear for the time being. We are following the evolving lithium landscape.

Walgreens Boots’ share price declined due to questions about the impact on pharmacies of Amazon’s potential entry into this business, and the shape of future alliances between health insurers and pharmaceutical distributors. The distribution and retail sale of prescription pharmaceuticals is highly regulated in the U.S. and in the European markets, where Walgreens Boots operates. The firm gained approximately 1% of market share in the U.S. retail prescription drug market in 2017 and reported strong financial results for its most recent quarter ended February 2018. The company continues to expand its U.S. retail footprint following the recent purchase of more than 1,500 RiteAid stores.

European airlines easyJet and Ryanair are both enjoying a cyclical improvement in their markets following the industry’s oversupplied conditions of 2015 and 2016. Ryanair is also making strides this year toward additional network expansion, including new routes serving cities in Germany and Ukraine. Helmerich & Payne was buoyed by rising oil prices and correspondingly higher activity levels of customers; HP shares rose over 50% since last September. And Galaxy Entertainment appears poised to gain from the opening of the Hong Kong–Zhuhai–Macau bridge, slated for this summer.

Lastly, we sold our shares of gaming & leisure group Wynn Resorts in January due to strong price appreciation combined with a change in the governance profile of the company following allegations of misconduct by Chairman Steve Wynn. Wynn Resorts was a leading contributor to our portfolio over the past two years, as its ongoing growth in Macau and Boston was recognized in the market.

We made other portfolio changes in the March quarter due to developments at the individual businesses and in the broader market. In addition to Wynn cited above, we exited Helmerich & Payne and Kraft Heinz during the quarter. We added to our holdings in homebuilder Barratt Developments and chemicals group OCI, and we are actively pursuing other opportunities.

Relative to the index, we are overweight industrials and telecommunications, and underweight consumer staples and health care. Geographically, the fund is overweight China and Europe and has no direct exposure to Japan. Emerging market investments comprise about 12% of the portfolio. The average one-year forward price-to-earnings multiple of the companies owned in Thornburg Global Opportunities Fund stands at 14.7x, vs. 15.3x for the ACWI.

The following table illustrates the fund’s largest geographic weightings, by country of domicile:

USA 35%
Netherlands 11%
Hong Kong 8%
United Kingdom 7%
Spain 6%
* As a percent of the fund.

Investors are ratcheting up debates about the future direction of the major economies and potential policy actions by the U.S. Federal Reserve and the Trump administration. Trade conflicts, asset prices, and Brexit uncertainty are also in focus. Importantly, overall global consumer spending is growing in 2018, along with global industrial production and the global population. Most macroeconomic indicators around the world positively surprised in 2017 and the first quarter of 2018, with the U.S. a relative laggard.

Owing to strong recent data, earnings expectations for the MSCI All Country World Index portfolio for 2018 have improved in recent months, along with global economic growth forecasts. These positive trends continue to support a rotation of investor preferences from defensive debt and 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 1.75% over the last five quarters. Other major central banks around the world continue to pursue 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%.

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Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 3/31/18.

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