International ADR Strategy - Commentary

2nd Quarter 2021

Lei Wang, CFA
Lei Wang, CFA
Portfolio Manager and Managing Director
Matt Burdett
Matt Burdett
Portfolio Manager and Managing Director
Portfolio managers are supported by the entire Thornburg investment team.
July 1, 2021
Market Review
  • In the 2nd quarter international equity markets recorded their 5th straight quarterly advance since the market’s bottom in March of last year, with the MSCI ACWI ex USA Index up 5.48% and the MSCI EAFE Index rising 5.17%.
  • Growth outperformed Value for the first time since the 3rd quarter of last year, with the MSCI ACWI ex USA Growth Index returning 6.7% versus 4.5% for the MSCI ACWI ex USA Value Index. Lower US interest rates helped, with the US Treasury yield curve flattening and yields falling 27 basis points or more in the 10- to 30-year part of the curve. Value has still outperformed Growth by more than 530 basis points year to date but with a lot of volatility in style leadership, Value having outperformed in 3 months and Growth in 3 months so far this year
  • Emerging Markets modestly underperformed Developed Markets led by China, which has underperformed this year after outperforming by 19% last year. The Eurozone and UK, which trailed last year, outperformed in 2Q and have outperformed YTD. Energy continued to outperform on rising crude prices but Financials, another traditional value sector which led in the 1st quarter, lagged on lower interest rates and the rotation into Growth. Health Care and Consumer Staples, which had negative returns in the 1st quarter, also outperformed as did Information Technology, traditionally a growth sector.
Second-Quarter 2021 Performance Highlights
  • In the 2nd quarter Thornburg International ADR Strategy returned 3.32% (net of fees), 216 basis points behind the ACWI ex USA Index and 185 basis points behind the EAFE. Year to date the strategy has returned 7.62% (net of fees), 154 basis points behind the ACWI ex USA and 121 basis points behind the EAFE.
  • After outperforming its benchmarks year to date through May, the strategy underperformed in June’s Growth rally. Sector and country allocation were about 50% to 60% of the shortfall, with an underweight in Health Care and Consumer Staples, an overweight in Utilities and Communication Services, and a 4.6% average allocation to Cash the biggest detractors on a sector basis. An overweight in the Eurozone and Switzerland and an underweight in Japan were positives, while a zero weight in Brazil, an underweight in Canada, and an overweight in China were negatives.
  • Bottom-up stock selection was responsible for about 40% to 50% of underperformance, with the underperformers being mostly either Value names which had outperformed year to date or Growth names which had previously outperformed but lagged in June’s Growth rally.

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 The holdings identified do not represent all of the securities purchased, sold or recommended for advisory clients.

Current Positioning and Outlook

During the quarter and since year end, we have increased the strategy’s weighting in Basic Value while decreasing the weight in Emerging Franchise and Consistent Earners, reflecting a shift towards Value and a more balanced core stance. At quarter end basket weights were 47% Basic Value, 32% Consistent Earner, 16% Emerging Franchise, and 5% Cash.

The strategy is overweight Industrials, Communication Services and Utilities. It is underweight Health Care, Consumer Staples, and Information Technology. We are overweight the Eurozone and Switzerland, with a 15% out of index position in global companies domiciled in the U.S. We are underweight the UK, Japan, and Canada, and zero weight Pacific ex-Japan, Korea, India, and Emerging Latin America and EMEA. Given China’s outperformance over the last year we’ve consistently trimmed our exposure there to neutral (an 11% position, down from last year’s high of 19%).

We remain constructive about the outlook for international markets in the second half of the year given the continued level of fiscal and monetary support from major economies, continued progress on vaccination and reopening, and as a result the global economy. That would suggest higher interest rates and an outperformance of Value names in the medium term, but in the shorter term a downtrend in longer-term interest rates and fluctuating leadership between Value and Growth would suggest a more balanced core positioning led by bottom-up stock selection, which we have practiced since the strategy’s inception in 2003.

Important Information

Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 06/30/21.

Performance data for the International ADR Strategy is from the International ADR Composite, inception date of August 1, 2003. The International ADR Composite includes discretionary institutional and high net worth accounts that are not part of a broker-sponsored or wrap program. Effective January 1, 2014, the composite includes separately managed institutional and high net worth accounts. Prior to January 1, 2014, the composite also included broker-sponsored accounts that paid transaction costs. The composite was redefined to include broker-sponsored accounts in the same composite. Returns are calculated using a time-weighted and asset-weighted calculation including reinvestment of dividends and income. Periods less than one year are not annualized. 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. 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 0.75%, this increase would be 142%.

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.

The Strategy may invest in shares of companies through initial public offerings (IPOs). IPOs have the potential to produce substantial gains and there is no assurance that the Strategy will have continued access to profitable IPOs. As Strategy assets grow, the impact of IPO investments on performance may decline.

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.

Holdings may change daily and may vary among accounts.

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.

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