Small/Mid Cap Core Fund - Commentary

2nd Quarter 2021

Steven Klopukh, CFA
Steven Klopukh, CFA
Portfolio Manager and Managing Director
Portfolio managers are supported by the entire Thornburg investment team.
July 1, 2021
Market Review

The promise of an efficacious vaccine began to materialize in the second quarter as US markets continued to perform, economic activity accelerated, jobs returned, and overall sentiment remained high. However, relatively higher inflation induced partly by supply constraints, and expectations of higher rates, dampened what has otherwise been a quick recovery from a similarly quick recession last year. The start of this quarter was a continuation of last quarter’s trends where investors favored small-cap stocks with cyclical and consumer exposure. However, June was a reversal of the trend as growth stocks resumed leadership. Small/Mid Cap sector leadership measured using the Russell 2500 Index was led by Energy and Communication Services, while Consumer Staples and Utilities relatively underperformed.

First-Quarter 2021 Performance Highlights
  • The Thornburg Small/Mid Cap Core Fund returned positive 4.45% (I shares), underperforming the Russell 2500 Index, which returned positive 5.44%, and the S&P 500 Index, which returned positive 8.55%.
  • Top-performing sectors were Information Technology and Financials, where stock selection helped drive the performance. Top detracting sectors from relative performance were consumer discretionary and industrials.
  • Small/Mid cap stocks, between $2.5 billion and $12 billion market capitalization returned 1.6% and drove relative underperformance against the Russell 2500. On the positive side, the fund’s overallocation to companies with market capitalizations over $12 billion returned 12.7%, beating the overall benchmark. Being underweight smaller companies with market capitalizations under $2.5 billion was also a positive contributor to performance.

Current Positioning and Outlook

The late quarter rotation towards higher-quality growth stocks reinforces our outlook that this is an accelerated economic cycle. As such, we appear to be shifting away from early cycle behavior with peaking economic conditions to more mid-cycle behavior. During these periods, higher-quality stocks tend to perform relatively better, which would favor our general philosophy and current positioning of targeting higher-quality core and reasonably valued growth stocks. Even so, as we move further along in this economic cycle, we would expect a more balanced market environment that is less about style and more about longer-term earnings power. We remain encouraged with the Biden administration’s infrastructure bill that has a focus on renewables with the potential to benefit many companies we own. The portfolio maintains balanced exposure to consistent earners, emerging franchises, and reopening beneficiaries. The portfolio is exposed to ongoing and emerging investment themes, including animal health, digital payments, analog to digital enablers, energy transition, among other important secular themes. We continue to focus on companies with strong free-cash-flow prospects and responsible capital allocation.

Thank for your continued support and for investing alongside us.

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 6/30/21.

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.

Funds invested in a limited number of holdings may expose an investor to greater volatility.

Notable purchases and sales includes material transactions other than recently purchased securities, which may be excluded for best execution purposes.

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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