Developing World Fund - Commentary

3rd Quarter 2020

Ben Kirby, CFA
Ben Kirby, CFA
Co-Head of Investments and Managing Director
Charles Wilson, PhD
Charles Wilson, PhD
Portfolio Manager and Managing Director
Portfolio managers are supported by the entire Thornburg investment team.
October 1, 2020
Market Review

Global equities posted robust returns for the second straight quarter as economic indicators suggest many regions are seeing activity improve more quickly than anticipated. The MSCI Emerging Markets (EM) Index outpaced both U.S. and developed international indices during the third quarter as China became the first major economy to return to positive GDP growth post the COVID-19 outbreak. Despite the optimism, global equity markets began to soften through September, as economic health and political uncertainty remain elevated.

Third-Quarter 2020 Performance Highlights
  • The Thornburg Developing World Fund returned 10.33% (I shares), outperforming its benchmark, the MSCI EM Index, which returned 9.56%.
  • Top relative contributors by sector were consumer staples and energy, with strong stock selection driving relative outperformance. Allocation effect was modest for each sector. The worst-performing sector was information technology, where a small overweight contributed slightly to relative performance, but stock selection detracted from results.
  • On a country-level basis, top contributors to relative performance were China and Taiwan, with strong stock selection being the primary driver in both cases. The U.K. was most detractive from a country perspective—a digital payments company domiciled in London but generating ~100% of revenue from the Middle East and Africa—was the portfolio’s worst performer.

Current Positioning and Outlook

Differing country-level responses in health care policy, as well as economic support, has created a sizeable divergence in the recovery of emerging markets. Aggressive responses across North Asia have led to some countries renormalizing with virus levels near zero, while countries such as Brazil, Mexico and India struggle to manage containment amongst reopening. In the short term, we think emerging markets (in aggregate) will be OK due to the influence of North Asia. Realistically, we’re going to need a vaccine or drug therapy for some markets to fully recover. Until then, countries outside of North Asia remain fragile. Nonetheless, COVID-related volatility has created opportunities. Our stock selection process is specifically designed to take advantage of periods of uncertainty and that’s exactly what we’ve been able to do over the past six months. Following major market disconnects in early March, we nimbly repositioned the portfolio to better reflect the current environment. We continue to find compelling opportunities via a focus on the bottom up and have outperformed the MSCI EM Index by ~680 basis points from March 9 through September 30.

Over the longer term, we still believe strong growth opportunities for emerging markets remain intact. A global injection of liquidity, low interest rates and a stable dollar is a very favorable cyclical setup as we recover from the global pandemic. As always, our aim is to build a balanced portfolio that can provide stability across EM market cycles. We remain confident that our concentrated portfolio of high-quality businesses is well positioned to participate in the longer-term return potential of emerging markets while mitigating benchmark relative volatility along the way.

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.

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.

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