Thornburg Core Growth Fund

2nd Quarter 2019

Ted Chang, CFA
Ted Chang, CFA
Portfolio Manager and Managing Director
Greg Dunn
Greg Dunn
Portfolio Manager and Managing Director
Portfolio managers are supported by the entire Thornburg investment team.
JULY 19, 2019

For the second quarter of 2019, the Thornburg Core Growth Fund returned 3.07% (I shares), trailing its benchmark, the Russell 3000 Growth Index (the index), which returned 4.50%. This brings the year-to-date 2019 return to 21.66% for the fund, versus 21.41% for the index. The fund’s I shares have returned 9.34% since inception.

Global markets experienced an acute bout of negative volatility in May as the United States unexpectedly ratcheted up trade tensions with two of its largest trading partners, Mexico and China. Both domestic and foreign financial markets were further pressured as investors digested soft economic data suggesting weakening trends in global growth. We saw treasury and other foreign sovereign yields decrease notably as investors clamored for safe haven assets. It was only after trade tensions de-escalated when tariffs on Mexico were dropped and a temporary truce was achieved with China at the G-20 Summit that markets settled and turned. Furthermore, U.S. and European central bank policy makers signaled a more accommodative policy stance, helping to boost investor confidence. Uncertainty lingers around the eventual outcome of trade negotiations and continues to weigh on markets.

With the global economy appearing to be late in the cycle, it remains to be seen whether proper policy and political actions will keep growth resilient or whether an already softening economy will be further harmed by adverse events.

Top Performers

Top performers for the quarter included Facebook, Visa, DexCom, Fleetcor Technologies and Expedia.

Facebook shares continued their recovery from last year’s swoon and have been a strong contributor to results year to date. Despite the company’s well-publicized privacy and security challenges, it’s fundamental operating metrics have been healthy and shares have recovered in part from less of a revenue deceleration than previously feared.

Visa continues to execute well with robust organic growth and improving margins and has a long duration secular growth opportunity ahead as payments steadily shift towards more digital forms over time.

FleetCor Technologies is a global provider of fleet payment cards and commercial payment solutions. The company reported a solid quarter and raised guidance. Fuel card growth accelerated and reassured investors after hitting a speed bump last year.

DexCom develops, manufactures and distributes glucose-monitoring systems. The company reported revenue growth that far exceeded expectations and demonstrated continued strong adoption of their Continuous Glucose Monitoring solutions.

Expedia is the world’s largest online travel agency by bookings. The company operates in what is effectively a duopoly market and recent investments and acquisitions stand to add to the company’s existing platform scale. Shares traded up on an improving macro outlook, following a softening stance from the Federal Reserve, which could encourage more consumer discretionary spending.

Bottom Performers

Bottom performers this quarter included Pivotal Software, Arista Networks, Alphabet, Affiliated Managers Group and SS&C Technologies.

Pivotal Software provides software solutions to help enterprises transition their businesses to the cloud. In the quarter, the newly public company saw a shift in demand as potential customers took longer to reach deal closure, leading to downward guidance. The business has inherent lumpiness but still appears well positioned among peers. Arista Networks primarily provides switching equipment for large data centers and campuses.

Arista traded down during the quarter as they hit a “speed bump” in demand, resulting in a soft guide for the second quarter.

Alphabet sold off in June following media reports that the U.S. Department of Justice is investigating the company’s competitive practices. While regulatory proceedings can put an overhang on a stock, there are numerous examples where these have been very attractive buying opportunities for long-term investors.

Affiliated Managers Group is a global asset manager. The company saw a nearly 12% drop in assets under management (AUM) in 2018. Earnings reported during the quarter showed continued weak AUM trends.

SS&C engages in the development and provision of software solutions. While recent reported earnings were in line with market expectations, organic growth deceleration remains a key concern.

Outlook

Investors will be watching closely whether this latest ebb in trade tensions is just a temporary pause before talks breakdown as both sides take on entrenched positions or if parties are genuinely making progress towards a resolution that is ultimately in the interest of all groups involved and the global economy at large.

Although we are seeing a downtrend in various business and consumer confidence indicators, we remain optimistic that despite the continuing economic and trade risks, the global economy will prove to be more resilient than expected. Across the major developed markets, we see labor and employment conditions as healthy with broadly rising incomes. In the eurozone, for example, unemployment now stands at 7.6%, not far off from pre-crisis levels. Although select labor markets in advanced economies are considered tight, inflation trends broadly have been relatively muted. We believe this will allow the strong dovish signaling we’ve seen from major central banks to become more than merely words, but concrete policy actions.

As we enter late cycle conditions, a slowing global economy appears to be underway. We believe these conditions will favor stock selection and the companies that will outperform are the ones we tend to favor, that is high-quality growth companies that can transcend the economic cycle through secular growth opportunities, superior execution and growing economic moats.

Through our repeatable bottom-up process that relies on deep fundamental research, we are, even in this environment, finding opportunities to deploy capital into businesses with franchise characteristics and durable growth drivers that can deliver compelling risk-adjusted returns over time.

We thank you for investing alongside us in the Thornburg Core Growth Fund.

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 6/30/19.

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.

Please see our glossary for a definition of terms.

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