Core Growth Fund - Commentary

3rd Quarter 2020

Greg Dunn
Greg Dunn
Portfolio Manager and Managing Director
Portfolio managers are supported by the entire Thornburg investment team.
October 1, 2020
Market Review

Following a sharp recovery in the second quarter, U.S. equity markets continued to bounce back in the third quarter after the pandemic-related sell off which troughed in March. In fact, major U.S. indices, and especially growth indices, reached all-time highs during the third quarter as investors continued buying equities. While the trends driving equity valuations higher continued, leading to a K-shaped equity market recovery, the spread between structurally challenged cyclicals and pandemic beneficiaries began to moderate towards the end of the quarter on hopes vaccine development and therapeutics could lead to a quicker-than-anticipated reopening. The U.S. economy continued recovering jobs, and leading economic indicators continued improving, creating hope for the economy amidst fears of a second wave.

Third-Quarter 2020 Performance Highlights
  • The Thornburg Core Growth Fund returned 8.59% (I shares), underperforming its benchmark, the Russell 3000 Growth Index, which returned 12.86%.
  • Top-performing sectors on a relative basis were health care and real estate, where the under allocation was positive and drove the majority of the performance. The largest negative impacts were from consumer discretionary and information technology, where stock selection and under allocation to mega-cap technology companies was a drag on performance.
  • Our focus on high-quality secular growth stocks boosted performance during the quarter. Several of our holdings with exposure to the acceleration of the digital economy like Square and Zoom continued to benefit from the market, rewarding disruptive technologies that seem poised to benefit from the new normal environment.

Current Positioning and Outlook

The rebound in the U.S. equity market that began in late March was just as swift as the downturn. The portfolio outperformed during the rebound, as it did in the first quarter during the market downturn. The portfolio underperformed in the third quarter as some of the heavy beneficiaries in the first half of the year lagged.
We continue to focus on high-quality, growing businesses with durable growth trends on maintaining diversity across the growth spectrum. The current market environment contextualized by the pandemic pulled forward many secular growth trends this portfolio already owned to start the year. Some of these themes include digitalization of the world through e-commerce, streaming video, and gaming (both on-demand and mobile) and enabling technologies like digital payments and cloud computing.
While we have more clarity than we did a quarter ago on the economic damage, the long-term fallout appears unclear. The U.S. employment picture and consumer health made progress during the quarter, but still have a long road to recovery. Another outcome we see as likely is that the world will not return to a pre-pandemic normal. People will work, interact, spend and entertain in different ways than before the crisis.
We believe our exposure to idiosyncratic, durable growth themes is well positioned to benefit from our new normal environment of working and entertaining from home or at a distance. As we have seen in the past, market dislocation can be a driver of disruption and innovation as well as providing great opportunities to invest in or add to excellent businesses at attractive valuations. We continue to focus on discerning between which companies will continue to exhibit durable growth, and which companies are only seeing temporary or less sustainable growth.

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

Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 9/30/20.

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.

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.

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

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