Thornburg Global Opportunities Fund

2nd Quarter 2019

Brian McMahon
Brian McMahon
Chief Investment Officer and Managing Director
W. Vinson Walden, CFA
W. Vinson Walden, CFA
Portfolio Manager and Managing Director
Portfolio managers are supported by the entire Thornburg investment team.
25 July 2019

For the second quarter of 2019, the Thornburg Global Opportunities Fund returned 0.60% (Class I shares, Accumulating), trailing the MSCI All Country World Index (ACWI), which gained 3.61%. This brings the Fund’s first-half result to 13.29% versus the index at 16.23%. We continue to manage the portfolio with a long-term orientation and encourage that mindset for all shareholders. Recall that the Thornburg Global Opportunities Fund seeks capital appreciation from a focused portfolio of global equity investments. We believe the structure of the portfolio—built on our core investment principles of flexibility, focus and value—gives us a durable framework for value-added investing.

Global financial markets saw substantial volatility in the June quarter, with U.S. equities again performing well. After a strong first four months of 2019, May featured a sharp decline with U.S.- China trade negotiations abruptly deteriorating and the U.K. prime minister’s resignation adding to Brexit uncertainty. Equity markets rebounded amid greater optimism regarding trade disputes and more signals of accommodative central bank policies. From a sector perspective, all but one of the 11 sectors comprising the ACWI delivered positive returns in the second quarter. Energy was the only sector with a slightly negative return. Financials were the largest contributor to index performance, accounting for 0.96% of the 3.61% index total return for the quarter. For the Thornburg Global Opportunities Fund, communication services and financials were the strongest sectors. Our consumer discretionary investments turned in the weakest quarterly contribution to portfolio performance.

The table shown below lists the key performance drivers for the Fund, by sector.

Facebook shares continued their recovery from last year’s swoon and have been the strongest contributor to portfolio performance year to date. Despite the company’s well-publicized privacy and security challenges, its fundamental operating metrics have been healthy and the platform continues to enjoy a unique position as the largest social network in the world.

Shares of Citigroup rose as the bank’s solid operating results featured growth in per share earnings driven by solid expense control and share buybacks.

Two of our holdings rose sharply in the quarter based on their announcements to be acquired. Fiber network Zayo climbed following the news in May of its all-cash acquisition by a private equity consortium led by Digital Colony. And in June, pharmaceutical group Allergan plc became the subject of takeover speculation culminating in an agreement to merge with a U.S.-based biopharmaceutical company in a $63 billion cashand- stock deal—at a 45% premium to Allergan’s undisturbed share price. We continue to hold Allergan and are evaluating the situation.

Capital One shares were strong performers in the second quarter as the company’s moderate credit losses and growing net interest income boost profits despite significant investments to become a leading digital bank. Satellite operator Echostar announced it was spinning off its Broadcast Satellite Services business to DISH Networks, sending Echostar shares higher.

Our European airlines, Ryanair and easyJet, underperformed in the quarter and have been notable detractors this year. Several factors, including weakening economic forecasts in Europe and Brexit concerns, have conspired to dampen the travel outlook. We are still constructive about the long-term opportunities for the low-cost carriers in the relatively fragmented European aviation market. Although they have different business models, both companies continue to grow profitably and could benefit from industry consolidation.

After notable outperformance during the first quarter, Reliance Industries reported good business progress and a solid outlook for its next fiscal year. However, shares lagged late in the second quarter as some investors sought more cyclical exposure to India following an unexpectedly business- friendly outcome in government elections.

Alphabet’s share price dropped in June, following media reports that the U.S. Department of Justice is investigating the company’s competitive practices in its Google search engine. Given Alphabet’s size and success thus far, we expect ongoing scrutiny by various regulators and incorporate this in our value assessment. Some analysts have observed that an eventual breakup of Alphabet could be beneficial for shareholders. MGM China detracted during the quarter due to concerns about the U.S.-China trade war and its impact on Chinese discretionary spending. We believe MGM’s long-term opportunity in Macau remains promising.

During the quarter, we made new investments in two U.S.-based businesses. One, a leading U.S. provider of kidney dialysis services for patients with chronic kidney failure. Driven by the growth of hypertension and diabetes in the U.S., dialysis patient demand has risen at a low single- digit rate for the past several years, and the company could benefit from a government-promoted shift toward in-home patient care.1 The second is a leading designer and manufacturer of radio frequency (RF) chips for managing wireless communication signals in smart phones and other wireless devices. The company is one of three primary RF chip manufacturers that could benefit from the rising complexity of mobile phones and other connected devices.

The Thornburg Global Opportunities Fund ended the quarter with its largest active weightings in the communication services, industrials and financials sectors. We are underweight the health care, information technology and consumer staples sectors. Geographically, the portfolio has above-benchmark exposure to Europe and Asia ex-Japan, but no direct exposure to Japan. Firms headquartered in emerging markets comprise 15% of the portfolio.

Given our focus on fundamental progress and the intrinsic values of the businesses in the Thornburg Global Opportunities Fund, we remain constructive about the long-term outlook for the portfolio. We believe dispersion in equity returns and valuations across regions and sectors—such as we’ve seen recently—will present more opportunities ahead for our investment framework. We continue to follow our core investment principles of flexibility, focus and value, as we have through a wide variety of macroeconomic settings over the Fund’s life.

Thank you for investing in the Thornburg Global Opportunities Fund.

1. For more, see “Trump signs executive order to transform kidney care, increase transplants,” https:// www.cnn.com/2019/07/10/health/trump-kidney- executive-order/index.html
Important Information

Source of data: Factset, BBH, State Street, Confluence, Bloomberg—unless otherwise stated

Date of data: 30 June 2019—unless otherwise stated

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