Developing World Fund - Commentary

2nd Quarter 2021

Ben Kirby, CFA
Ben Kirby, CFA
Co-Head of Investments and Managing Director
Charles Wilson, PhD
Charles Wilson, PhD
Portfolio Manager and Managing Director
Josh Rubin
Josh Rubin
Portfolio Manager and Managing Director
Portfolio managers are supported by the entire Thornburg investment team.
July 1, 2021

Market Review

After sliding in February and March, emerging market equities regained traction during the second quarter. Despite strong positive returns, the quarter wasn’t without its challenges for the asset class. Higher than forecasted U.S. inflation, coupled with ongoing COVID outbreaks across some EM economies, contributed to downward pressure over the first half of May. In response to the inflationinduced volatility, global central banks worked to quell concerns over shorter-term interest rate tightening and accelerating vaccine distribution in India and Brazil helped further abate investor fears. As a result of improving investor sentiment, emerging markets outpaced developed markets over the back half of the quarter, with markets like Brazil and Russia taking the lead.

Second-Quarter Performance Highlights

  • The Thornburg Developing World Fund returned positive 4.4% (I shares), modestly underperforming its benchmark, the MSCI EM Index, which was up 5.1%.
  • The utilities and health care sectors detracted from the fund’s relative performance. Allocation effect was modest for utilities, but stock selection was a headwind. An underweight allocation to health care, the index’s top performing sector, drove relative underperformance. Information technology and consumer discretionary sectors both contributed positively to relative performance. Within information technology, strong stock selection drove outperformance, while in consumer discretionary, stock selection and currency effect were primary drivers of relative performance.
  • On a geographic basis, stock selection within China and Taiwan detracted from relative results. Brazil and Uruguay contributed strongly to relative performance, with stock selection being the primary driver in both cases.

Current Positioning and Outlook

While economic indicators continue to remain supportive of a broad-based reopening, global uncertainty still remains high. Implications of inflation, as well as the potential timing of central bank tightening are points of much consternation, and value and growth dynamics continue to battle for market leadership. We are maintaining heightened awareness of the sources of inflation across markets and considering where it seems like a healthy outcome of demand recovering faster than idled supply restarts versus certain segments truly getting overheated. Broadly, we view recent inflation spikes as transitory, primarily an outcome of shorter-term supply and demand imbalances, as economies find their post-COVID footing. Despite the global uncertainty, we believe current market forces remain supportive of emerging markets.

As always, our goal remains to participate in a variety market in environments and we’re focused on maintaining portfolio style balance, mitigating index relative volatility, and relying on our high conviction portfolio of strong businesses to drive future performance.

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 6/30/20.

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.

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

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 glossaryglossary (www.thornburg.com/glossary) for a definition of terms.

Thornburg mutual funds are distributed by Thornburg Securities Corporation.

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