3rd Quarter 2018

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For the third quarter of 2018, Thornburg All Cap Growth Strategy had a total return of 5.46% (net of fees), while the benchmark Russell 3000 Growth Index rose 8.88%. This brings the strategy’s year-to-date advance to 19.31% versus the index’s 16.99% gain. On a relative basis, portfolio performance was challenged by company-specific events that caused several stocks to see outsized declines during the quarter.

While performance in the third quarter did not meet our expectations, our focus on delivering idiosyncratic stock returns produced successful results on a year-todate basis. Outperformance for this period was broad-based, with positive results from eight of 11 sectors.

U.S. equities, as measured by the S&P 500 Index, rose 7.71% during the third quarter. This was the strongest quarter since 2013. Tariff and inflation fears were overshadowed by a strong economy and near-record corporate profits. Low unemployment, high investor confidence, and reduced taxes were among a number of factors that drove the market higher.

During the quarter, the Federal Reserve reaffirmed its intention to steadily increase short-term rates in an effort to wean the economy and markets off easy money. Increasing rates too quickly could result in weak returns ahead, however, not raising rates could result in above-target inflation rates.

Performance Discussion

In the third quarter, nine of the 11 sectors comprising the Russell 3000 Growth Index delivered positive returns. Sector returns varied from negative 4.90% (energy) to 13.55% (information technology). For the strategy, the information technology, health care, and consumer discretionary sectors were the strongest contributors to return.

Top contributors to performance for the quarter included Dexcom, Inc.; Amazon .com, Inc.; Worldpay, Inc.; Visa, Inc.; and TJX Companies, Inc.

Dexcom makes a glucose-monitoring system for diabetes patients that we believe is the best on the market and will remain so for the foreseeable future. Performance was challenged in 2017 due to concerns around competition; however, the stock bounced back earlier this year and continued throughout this period as it became clear that Dexcom was the market leader from a technological standpoint.

Amazon continued to deliver very strong fundamental results as its well-publicized businesses grew at a high rate.

Worldpay reported an earnings update that saw organic revenue growth accelerate above market expectations. Furthermore, management for the first time quantified for investors the considerable revenue synergy opportunity arising from the merger of Worldpay and Vantiv.

Visa is a leading global payments and technology company that helps to enable global commerce. During the year, Visa has delivered strong financial results, and over the long run the company should be poised to continue to benefit from the secular trend of a shift of payments transactions from cash toward digital forms.

TJX Companies is a discount retailer of apparel and home fashions in the U.S. and abroad. Investors had relatively modest expectations for the companies. Sales and earnings exceeded expectations and the stock subsequently rallied.

Primary detractors from performance this quarter were Las Vegas Sands Corp.; Nevro Corp.; Facebook, Inc.; Bayer AG; and Criteo SA.

Shares of Las Vegas Sands were down during the quarter following a mixed earnings report. Growth was positive, but below expectations. Investors were already concerned about trade tensions with China and a potential slowing in gross gaming revenue growth for the Macau region, so the mixed report for Sands and other casino operators was enough to cause an overall rerate.

Nevro is a medical device corporation that focuses on a spinal stimulation system for the treatment of chronic pain. Nevro shares declined following disappointing earnings results and then again following a key executive departure. However, guidance for 2018 remained on track.

Facebook’s stock price has been surprisingly volatile during 2018 and was among the main detractors in the first quarter, top-five contributors in the second quarter, and again a headwind to portfolio performance in the third quarter. Shares declined after the company’s second-quarter results, when management guided to lower earnings growth in the coming years as the firm invests more in quality control and its global data center network.

Bayer’s stock price dropped significantly following a jury verdict against its Monsanto subsidiary. Monsanto produces Roundup, which a jury deemed to be carcinogenic. Several scientific studies had been conducted previously, none of which had proven Roundup to be a carcinogen.

Criteo is a French online advertising services company. The stock declined during the period as the company failed to mitigate the revenue declines caused by Apple’s changes to ad tracking on its mobile Safari web browser.

Most macroeconomic indicators around the world positively surprised in 2017 and the first half 2018, with the U.S. economy continuing to stand out over the past few months. U.S. non-farm payrolls reached an all-time high of almost 150 million in September. The U.S. economy’s resilience and prospects for rising inflation, combined with uncertainties around Europe and the future of globalization may have caused the U.S. dollar and bond yields to rise in tandem.

In spite of the trade tensions, global consumer and business spending is growing, and we expect people around the world will continue to buy goods and services and trade with one another. The dispersion in regional equity returns has created opportunities abroad for investors with longer time horizons.

The U.S. Federal Reserve has maintained the pace of target rate hikes, moving the upper bound of its Federal funds rate from 0.75% to 2.25% over the last seven quarters. Most major central banks around the world continue to pursue very easy monetary conditions, which artificially suppress interest rates and support prices of financial assets.

Our process and approach to investing remains consistent with a focus on high-quality companies with wide economic moats and low macro dependence. The stocks we own have the potential to grow rapidly because of secular or stock-specific factors that we think can help them sustainably compound business value over long time horizons. This results in a collective portfolio of stocks that we believe can navigate even choppier seas and may provide our investors with a return profile that is attractive on a risk-adjusted basis over a full market cycle.

We thank you for investing in Thornburg All Cap Growth Strategy.

Contributors to Performance1
(Representative Account)
NameContrib %Avg Wgt %
Dexcom, Inc. 1.19 2.26
Amazon.com, Inc. 0.67 3.99
Worldpay, Inc. 0.59 2.68
Visa, Inc. 0.52 3.93
TJX Companies, Inc. 0.47 2.79
Detractors from Performance1
(Representative Account)
NameContrib %Avg Wgt %
Las Vegas Sands Corp. -0.71 2.83
Nevro Corp. -0.61 1.77
Facebook, Inc. -0.51 2.99
Bayer AG -0.31 0.95
Criteo S.A. -0.28 0.45

1. Past performance does not guarantee future results. To obtain the calculation methodology and a list showing the contribution of each holding in the representative account to the overall account's performance during the reporting period, please email a request to bdg@thornburg.com. The holdings identified do not represent all of the securities purchased, sold or recommended for advisory clients.

Important Information

Performance data for the All Cap Growth Strategy is from the All Cap Growth Composite, inception date of January 1, 2001. The composite includes non-wrap discretionary accounts invested in the All Cap Growth Strategy. Returns are calculated using a time-weighted and asset-weighted calculation including reinvestment of dividends and income. Returns are annualized for periods greater than one year. Individual account performance will vary. The performance data quoted represents past performance; it does not guarantee future results. Gross of fee returns are net of transaction costs. Net of fee returns are net of transaction costs and investment advisory fees. For periods prior to 2011, net returns for some accounts in the composite also reflect the deduction of administrative expenses. Thornburg Investment Management Inc.’s fee schedule is detailed in Part 2A of its ADV brochure. Performance results of the firm's clients will be reduced by the firm's management fees. For example, an account with a compounded annual total return of 10% would have increased by 159% over ten years. Assuming an annual management fee of .75%, this increase would be 142%.


 As of 9/30/18

1 Yr

3 Yr

5 Yr

10 Yr

Inception 1/1/2001

All-Cap Growth Composite (Net)
All-Cap Growth Composite (Gross)
Russell 3000 Growth Index

Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 9/30/18.

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.

Holdings may change daily and may vary among accounts.

The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account's portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account's entire portfolio and in the aggregate may represent only a small percentage of an account's portfolio holdings. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

Portfolio holdings and characteristics shown herein are from a representative account managed within the investment composite. The representative account is selected based on account characteristics that Thornburg believes accurately represent the investment strategy as a whole. Should these characteristics change materially, Thornburg may select a different representative account. Holdings may change daily and may vary among accounts, which may contribute to different investment results. The representative account information is supplemental to the strategy’s composite and GIPS compliant presentation.

Portfolio construction will have significant differences from that of a benchmark index in terms of security holdings, industry weightings, asset allocations and number of positions held, all of which may contribute to performance, characteristics and volatility differences. Investors may not make direct investments into any index.

Please see our glossary for a definition of terms.