The fourth quarter of 2019 saw the S&P 500 Index accelerate into the close, continuing its yearlong uptrend by posting a positive return of 9.07% for the year’s final three-month period. Broadly, the market benefited from increased optimism over a potential U.S.-China phase one trade deal, providing a measure of relief for equity investors. Markets got additional support after the U.S. Federal Reserve lowered the Fed funds rate during the quarter, maintaining its accommodative, if not dovish, stance.
Fourth-Quarter 2019 Performance Highlights
- During the fourth quarter, the Thornburg Value Fund returned 9.06% (I shares), just about in-line with its benchmark, the S&P 500 Index, which returned 9.07%. The fund returned 29.32% for the full year, underperforming the S&P 500’s 31.49% return.
- Amid the fourth quarter equity market rally, we had strong stock selection in consumer discretionary and financials, and weaker selection in health care.
- Financials generally react favorably to rising interest rates. Our holdings in the financials sector contributed to the fund performance as the yield on the 10-year U.S. Treasury increased from 1.66% to 1.92% during the fourth quarter. Conversely, utilities tend to react negatively in a rising rate environment. Our holdings in the utilities sector detracted from quarterly results.
Current Positioning and Outlook
The fund is overweight communication services and financials, while underweight information technology and industrials. We believe that a few of our communication services companies share characteristics more consistent with companies in the information technology sector. However, sector classification is not discretionary. Nevertheless, we consider each company’s fundamental business drivers in our risk management framework, and thus feel that our portfolio is more balanced than the simple data may suggest.
Both industrials and financials are economically sensitive, cyclical sectors—currently, we find the opportunities in financials more compelling. The overall portfolio’s price-to-earnings (P/E) multiple is at a 20% discount to the S&P 500’s P/E ratio, while exhibiting higher expected earnings-per-share growth. The fund tries to simultaneously avoid high-multiple, slow-growth stocks and high-growth stocks trading at high sales multiples without underlying earnings. Narrowing of the fund’s P/E ratio discount, and/or continued higher earnings growth, could drive attractive relative performance vs. the S&P 500 Index in future periods.
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%.