3rd Quarter 2017

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For the third quarter of 2017, Thornburg Global Opportunities Fund produced a total return of 2.50% (A shares at net asset value), versus 5.18% for the benchmark MSCI All Country World Index (ACWI). This brings our year-to-date return to 14.69% for the Fund, versus 17.25% for the same index. Recall that the Fund seeks capital appreciation from a focused portfolio of equity investments from around the world. We believe the structure of the Fund—built on our core investment principles of flexibility, focus, and value—gives us a durable framework for value-added investing.

The performance of the Fund has compared well to its benchmark over most longer time periods. From its inception on 30 March 2012, through 30 September 2017, the Fund has outpaced the ACWI by an average margin of about 325 basis points (or 3.25 percentage points) per year, resulting in a total cumulative return since inception of 92.80% (A shares at net asset value) versus 63.95% for the ACWI.

Markets advanced again in the third quarter of 2017, marking the fifth consecutive quarter of positive returns for most major indices. Asset prices and global economic expansion continued to be aided by accommodative monetary policies, and a weakening U.S. dollar boosted developing markets. Against a favorable macroeconomic backdrop, rising geopolitical tensions on the Korean peninsula and the terrorist attack in Barcelona did little to disrupt investor optimism during the period. From an industry perspective, 10 of the ACWI's 11 sectors delivered positive returns for the September quarter, ranging from 2.5% (health care) to 9.4% (energy). Consumer staples was the only sector with a negative result, producing a negative 0.2% return.

The Fund's third-quarter results illustrate the merits of our geographic flexibility, as only one U.S. holding placed among our top five contributors. Performance was led by a diversified group of companies that are principally long-time investments in the Fund.

Chinese internet leader Baidu was a standout during the quarter. Management reported strong second-quarter operating results, and the company reduced its aggressive promotional spending on its "Online-to-Offline" (O2O) e-commerce initiatives. Doing so highlighted the robust profitability of the company's core search business, which had been obscured of late by O2O's operations.

Shares of CF Industries—a U.S. producer of nitrogen-based fertilizer—also perked up in the third quarter in conjunction with signs of a thawing in the North American fertilizer market. Following a long period of oversupply and a profit drought for CF, competition from imported fertilizer seems to be shriveling. Rounding out our top five contributors were Mineral Resources Ltd., an Australian mining concern; Teekay LNG Partners L.P., which owns a fleet of liquefied natural gas carrier ships; and Reliance Industries, an Indian conglomerate holding company which we purchased at the beginning of the year.

A handful of holdings also declined in the quarter. Shares of Spanish airport operator Aena were hampered by management turnover, uncertainty regarding dividend, and the terrorist attack in Barcelona. Both Altice NV, a multi-national telecommunications company, and its U.S. subsidiary, Altice USA, declined as acquisition prospects seemed to ebb. Rounding out the list of third quarter detractors were diversified equity REIT Colony NorthStar, Inc. and Globalstar, Inc., a provider of mobile satellite services.

In late July we made a new purchase of New World Development, a Hong Kong–based real estate group. Founded in 1970 by Cheng Yu-tung, New World is a leading property developer and landlord with additional operations in infrastructure, facility services, and hospitality. One of the company's largest property developments to date, Victoria Dockside, a mixed-use site on the waterfront in Kowloon, Hong Kong, is opening late this year and expected to be fully occupied in 2019. New World also owns a large tract of Hong Kong farmland, which could be developed for residential use in a market that is physically supply-constrained. Beyond property development, management's recent efforts to simplify its portfolio and improve capital allocation are encouraging. For now, New World Development trades at a material discount to book value and offers a 4% dividend yield.

In addition to New World, we initiated positions in Bayer AG, a German life-sciences group, and Zayo Group, a telecommunications company in Colorado. We sold our remaining stakes in Express Scripts, Ferrovial SA, and Mondelez during the quarter.

Relative to the ACWI, we are overweight energy, consumer discretionary, and telecommunications, and underweight financials and health care. Geographically, the Fund is overweight China and Europe and has no direct exposure to Japan. Emerging market investments comprise about 13% of the portfolio. The average one-year forward price-to-earnings multiple of the companies owned in the Fund stands at 18.3x, vs. 16.7x for the ACWI.

During the third quarter of 2017, investors debated the future economic direction of China, Europe, various emerging markets, and the U.S. They considered potential policy actions by the U.S. Federal Reserve, Congress, the Trump administration, and the implications of significant elections in France and Germany. Many political and macroeconomic issues remain open; importantly, however, overall global consumer spending is growing and most macroeconomic indicators around the world have positively surprised year-to-date, with the U.S. a relative laggard.

Earnings expectations for the MSCI All Country World Index portfolio for 2017 have improved following strong recent results in most markets, and global economic growth expectations have risen. These trends continue to support a rotation of investor preferences from more defensive debt and equity assets to those more economically sensitive. Under the current administration, political gridlock seems likely to persist in Washington, DC. While the U.S. Federal Reserve has stepped up the pace of Federal funds target rate hikes, most major central banks continue to pursue very easy monetary conditions.

We remind investors to maintain a long-term investment perspective. Though we remain constructive about the long-term prospects for the Fund, we expect periods of volatility. Our experience over many years supports the notion that our investment framework—predicated on bottom-up, fundamental value-sensitive investing—can add value versus broad equity benchmarks over time.

TOP FIVE CONTRIBUTORS TO PERFORMANCE

COMPANY COUNTRY1
Baidu, Inc. - ADR China
CF Industries Holdings, Inc. USA
Mineral Resources Ltd. Australia
Reliance Industries India
Teekay LNG Partners LP Canada
Contributors listed in alphabetical order.

TOP FIVE DETRACTORS TO PERFORMANCE

DETRACTORS COUNTRY1
Aena S.A. Spain
Altice NV Netherlands
Altice USA, Inc. USA
Colony NorthStar, Inc. USA
Globalstar, Inc. USA
Detractors listed in alphabetical order.

1. Holdings are classified by country of risk, determined at Thornburg’s discretion.


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: 30 September 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.

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