4th Quarter 2017

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We are pleased to report strong 2017 results, on both an absolute and relative basis, for Thornburg Global Equity Income Fund (the “Fund”). This marked our third consecutive year of relative outperformance. In the context of an improving global economy, the Fund returned 26.28% (Class A at net asset value) for calendar year 2017 versus a return of 22.40% for the benchmark MSCI World Index. This includes a fourth quarter result of 6.67% (Class A at net asset value) for the Fund versus the MSCI World Index return of 5.51%. The strong final quarter capped the Fund’s best year of absolute performance since inception.

As the name implies, robust dividend income is a core tenet of the philosophy underlying Thornburg Global Equity Income Fund. We invest for capital appreciation and income via a portfolio of attractively valued companies that have both the ability and willingness to pay dividends over time. Dividend income has historically been a primary driver of equity returns and can offer a tangible measure of corporate health and management discipline.

Notwithstanding our strong showing in the current bull market, we believe our emphasis on dividend income can bolster our consistency and risk management in tougher market conditions. Since inception, we have outperformed our benchmark in three of five full calendar years, including providing solid absolute downside protection during 2015 when global equity markets declined.

With respect to the Fund’s dividends, we continue to focus on companies that offer overall investment value on a total risk/reward basis, rather than focusing solely on higher dividend yields. As of 31 December 2017, the Fund’s trailing 12-month dividend yield was 3.03%,1 compared to 2.23% for the MSCI World Index. Our philosophy balances flexibility, focus, and value to identify unique investment ideas around the world, while appropriately managing and diversifying risks at the stock and macro levels.


Geographic, sector, and market capitalization flexibility are core tenets of our philosophy because they facilitate our risk management while considering a broad range of potential investments.

In 2017, we saw notable contributions from companies in Spain, the United Kingdom, Hong Kong, Bermuda, and Australia. Several of these countries comprise only small weights in global indices, but our flexibility allowed us to earn outsized returns. In 2017, six sectors contributed 250 basis points or more to the portfolio’s absolute performance, and only one sector had a negative total return. From a risk standpoint, our flexibility adds an element of diversification, which can reduce macro, political or regulatory risks in the portfolio. These common-sense advantages have been supported by numerous academic studies.2


A focused portfolio can provide benefits from a risk and a reward standpoint. We manage Thornburg Global Equity Income Fund to exploit the advantages of true global diversification. Diversifiable risk (known as “unsystemic risk” to finance wonks) declines as holdings are added to a portfolio.3 The Fund contains 50–60 investments, allowing us to capture the benefits of diversification without falling prey to what Peter Lynch referred to as “diworsification.” Rather than owning 200 average companies, we strive to focus on a limited group of promising businesses.


As fundamental analysts, we rely on our valuation-sensitive framework to systematically manage the Fund through changing market conditions. Simply put, we attempt to own good companies that are undervalued. Our value framework incorporates business quality, valuation, and future prospects; we conduct our research process to identify companies that score well against these criteria.

Fourth Quarter Review

Industrial sector companies were strong contributors to absolute and relative performance during the fourth quarter. In particular, the Fund benefited from positions in the transportation industry. Low-cost airline easyJet and Spanish airport operator Aena both rebounded from third-quarter share price declines. EasyJet announced a well-regarded candidate to conclude its search to replace its retiring CEO, and healthy economies across Europe continue to bode well for business and consumer travel trends. Aena’s consistently improving business fundamentals reflect Spain’s position as an attractive and affordable destination for tourists, in spite of a tragic terror attack in Barcelona during the third quarter and ongoing political concerns about Catalan independence.

Our overweight positioning and stock selection in the energy sector produced strong positive results. Teekay LNG Partners L.P. led the sector’s performance as investors gained confidence in the health of global LNG (Liquefied Natural Gas) supply/demand dynamics and Teekay’s ability to fund construction of the LNG ships it has on order. Other notable contributors were Speedcast International and MGM China Holdings.

At the sector level, health care performance was the greatest absolute headwind during the quarter. German pharmaceutical and chemical company Bayer AG was the most impactful health care detractor for the quarter. The stock suffered from uncertainty regarding the timing to conclude its acquisition of U.S. seeds leader Monsanto and the potential reduction in earnings if Bayer were required to exit quality businesses to gain anti-trust approval for the transaction.

Altice NV, a multi-national telecom group, was the Fund’s largest single detractor for the fourth quarter. The company’s third-quarter results were surprisingly soft and revealed a deceleration in operating momentum in Altice’s French and Portuguese markets. This operating softness was aggravated by investor concern about the company’s relatively high debt levels. Another underperformer in the quarter was Colony NorthStar, a REIT that also offers equity and debt asset management services. News flow was limited, but investor concerns appeared to increase about rising rates, and there was also short-term selling pressures from recently departed employees exiting their stakes. Other notable detractors were Adient plc and Hongkong & Shanghai Hotels, Ltd.

Although we pursue investment ideas based on fundamental analysis of individual businesses, not macroeconomic forecasts, we maintain awareness of the macro forces impacting the operating environments of our holdings. As we enter 2018, global consumer spending and industrial production is growing. Forecasts for 2018 global economic growth have risen above 3% for the first time in years, and earnings expectations for the MSCI World Index have also been rising.

Investor flows have been rotating from defensive debt and equity sectors to more economically sensitive equity sectors and asset classes. After a banner year, however, valuation multiples have expanded in many cases, and the opportunity set for bargain-minded investors seems more limited.

Following passage of significant changes to U.S. tax laws, it appears that political gridlock will prevail in Washington in 2018. After raising rates to 1.50% during 2017, the U.S. Federal Reserve has guided for three more rate hikes in 2018. In Europe, where GDP (gross domestic product) growth has recently outpaced that of the U.S., the European Central Bank plans to reduce its bond purchasing over the course of the coming year. Meanwhile, China continues to “rebalance” its economy toward more sustainable growth.

We urge our investors to maintain a long-term investment perspective. Simply stated, stock markets were exceptionally strong in 2017, and we expect returns to moderate over time. Regardless of economic or market environment, we will follow our core investment principles of flexibility, focus, and value, just as we have through a wide variety of settings over the years.

Thank you for investing in Thornburg Global Equity Income Fund.


1. In addition to the nominal stated dividend yield, some of our holdings pay irregular or special dividends from time to time.

2. Clifford Asness, Roni Israelov, and John M. Liew, “International Diversification Works (in the Long Run),” Working Paper, 2010).

3. See for example: Edwin Elton and Martin Gruber, “Risk Reduction and Portfolio Diversification: An Analytical Solution,” Journal of Business, 1977.

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, visit the Prices & Performance page.

Important Information

Source of data: Factset, BBH, Confluence, Bloomberg—unless otherwise stated
Date of data: 31 December 2017—unless otherwise stated.

Investments carry risks, including possible loss of principal. Additional risks may be associated with investments 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 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.

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