4th Quarter 2017

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For the fourth quarter of 2017, Thornburg Global Opportunities Fund (the Fund) produced a total return of 2.70% (A shares at net asset value) versus the 5.73% return for the benchmark MSCI All Country World Index (ACWI). For the full calendar year 2017, the total return for the Fund's Class A shares was 17.79%, trailing the 23.97% result for the ACWI benchmark. We utilized currency hedges to mitigate the risk of possible U.S. dollar appreciation against the value of our overseas investments denominated in foreign currencies. Since the value of the U.S. dollar declined against major currencies in 2017, these hedges detracted approximately 2.1% from the Fund's return during 2017. Over time, we believe hedges enable us to mitigate currency volatility and to focus on stock-specific investment opportunities. But in calendar year 2017, the hedges challenged our relative performance against the unhedged benchmark and unhedged global funds.

Our investment process has produced favorable results over the long term. From its launch on 30 March 2012 through 31 December 2017, the Fund has outpaced the ACWI by an average margin of roughly 260 basis points (2.6%) per year, resulting in a total cumulative return since inception of 98.00% (A shares at net asset value) versus 73.35% for the ACWI.


Our long-term track record has provided encouraging data to support our investment framework. We believe that the structure of the Fund—built on our core investment principles of flexibility, focus, and value—gives us a durable outline for value-added investing.


Geographic flexibility is a core tenet of our philosophy because it both enhances our risk management and allows us to consider a broad range of potential investments. The Fund's namesake, "Global Opportunities," underscores our flexibility to invest wherever compelling ideas may arise. In 2017, we benefited from significant investments in Australia, India, and Spain. From a risk standpoint, our flexibility adds an element of diversification, which can reduce political or regulatory risk in the portfolio. These common-sense advantages have been supported by numerous academic studies.1


A focused portfolio can provide benefits from both risk and reward standpoints. In managing the Fund, we attempt to capture the advantages of global diversification. However, diversifiable risk (known as "non-systemic risk" to finance wonks) declines as you add holdings to a portfolio.2 Thornburg Global Opportunities Fund contains 30-40 investments, allowing us 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 value 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 to identify companies that score well against these criteria.

Fourth Quarter Review

The Fund's absolute gains in 2017 produced an NAV near a new all-time high at year end. Our relative shortfall in the second half of the year was unsatisfying, but we have no regrets about the short-term cost to relative results from currency hedges, which limit the downside risk of our non-U.S. holdings. The Fund's positive absolute result in the fourth quarter was led by a number of businesses that are seeing a cyclical improvement in their markets, some of these following weak operating conditions in prior periods. This group includes low-cost U.K. airline easyJet plc, fertilizer producer CF Industries Holdings, Inc., international provider of marine transportation services for liquefied natural gas (LNG) and crude oil Teekay LNG Partners, Spanish airport operator Aena SME, S.A., and U.S. energy services leader Helmerich & Payne, Inc. Helmerich & Payne was buoyed by rising oil prices and correspondingly higher activity levels among its customers.

Homing in on the source of our relative underperformance in the fourth quarter is not difficult: long-time holding Altice N.V., a multi-national telecom group, was the Fund's largest detractor for both the fourth quarter and the full calendar year. 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 relatively high debt levels, and investors sold the shares heavily. While some of the challenges faced by Altice are structural (such as tough competition in France), others appear temporary or fixable. We note that the company's core business of provisioning broadband and telecom services is generally recurring and profitable, allowing for debt reduction over time. The company also has non-core assets (e.g. data centers and towers) and strategic options to consider opportunistically. As of this writing, Altice shares have recovered significantly from their lows in December.

Other detractors during the quarter were modest. Brazilian food giant BRF SA was negatively impacted by political turmoil domestically as well as management turnover. German pharmaceutical concern Bayer AG was hampered by a delay in its pending acquisition of agricultural science leader Monsanto Company.

As we enter 2018, global consumer spending is growing, along with global industrial production. Just this week, the World Bank lifted its forecast for 2018 global economic growth to 3.1%, and earnings expectations for the MSCI World Index portfolio for 2018 have been rising. These trends continue to fuel a rotation of investor flows from more defensive debt and equity securities to more economically sensitive assets. After a banner year, however, valuation multiples in many cases have expanded, 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. The U.S. Federal Reserve (Fed) has stepped up the pace of Federal funds target rate hikes, moving the target from 0.75% to 1.50% during 2017. The Fed expects three more hikes in the coming year. In Europe, where GDP (gross domestic product) growth has recently outpaced the U.S., the European Central Bank plans to reduce its bond purchasing over the course of the year. Meanwhile, China continues to "rebalance" its economy towards more sustainable growth.

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


Aena SME, S.A. Spain
CF Industries Holdings, Inc. USA
easyJet plc U.K.
Helmerich & Payne, Inc. USA
Teekay LNG Partners LP Canada
Contributors listed in alphabetical order.


Altice N.V. Netherlands
Altice USA, Inc. USA
Bayer AG Germany
BRF SA Brazil
Colony Northstar, Inc. USA
Detractors listed in alphabetical order.

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

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

3. Holdings are classified by country of risk. Source: MSCI and Bloomberg.

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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