Global Opportunities Fund (UCITS) - Commentary

3rd Quarter 2020

Brian McMahon
Brian McMahon
Vice Chairman and Chief Investment Strategist
Miguel Oleaga
Miguel Oleaga
Portfolio Manager and Managing Director
Portfolio managers are supported by the entire Thornburg investment team.
1 October 2020

This Thornburg Global Opportunities Fund commentary is published amidst the ongoing developments associated with the global spread of COVID-19. Government bodies around the world have taken unusual steps to control the spread of the disease and mitigate the consequences of related economic disruption in order to keep the basic structure of the global economy in place to resume normal economic activity when the pandemic passes.

Most equities in the Thornburg Global Opportunities Fund recovered strongly in the June and September quarters from their March 2020 price troughs, as the list on the following page will describe. Listed in descending order are the 20 largest holdings in the fund as of 30 September 2020, along with year-to-date returns as of 30 September 2020 and 31 March 2020 [the latter in parentheses]. We also show the trailing five-year average annual revenue growth rates for these businesses through year end 2019, or the latest reported fiscal year end. Together, these firms comprise approximately 80% of the fund’s total assets, near-cash debt comprises 3% of fund assets and 10 other equities comprise a total of approximately 17% of fund assets. Even with share price recoveries in the June and September quarters, six of these 20 largest equity investments have delivered negative returns in 2020 through 30 September. We believe observed operating results from these businesses could justify better future returns.

The fund’s health care and digital communications centric businesses have fared best in the first half of 2020, while financial firms have fared worst. Individual position sizes of the top 20 positions range from 5% or more (Reliance Industries, Alibaba, Vestas Wind Systems and Samsung) to just over 2.5% for those shown near the bottom of this list.

The reader will notice a high incidence of investments in firms tied to the digital economy, and to tools to facilitate digital communications.

These are not trivial businesses. They tend to be well capitalized. We believe most of these will emerge from the present economic valley with their competitive positions intact or improved. Most have been growing faster than the global economy in recent years as the trailing annual revenue growth rates indicate. Some of the slower growers over recent years appear to be advantaged in their industries at this time.

Table 1 | Global Opportunities Fund – Top 20 Equity Holdings (as of 30 Sep 2020)

(Together, these 20 investments account for approximately 80% of fund assets as of 30 Sep 2020; near cash interest bearing debt account for 3% of assets, approximately 10 other equity investments account for around 17% of fund assets)

Name of Company 2020 YTD Performance at 30 Sep 2020 and [at 31 March 2020] ($US) Trailing 5-Yr Annual Revenue Growth Rate 2014–2019
Vestas Wind Systems A/S +62.7%; [-19.6%] +11.9%
Manufactures, markets and services wind turbines for electricity generation, based in Denmark
Reliance Industries Ltd. +44.8%; [-30.5%] +9.7%
India-based conglomerate: chemicals, refining, #1 mobile telco and #1 retailer in India
Alibaba Group Holding Ltd. +38.6%; [-8.3%] +48.3%
China-based provider of internet infrastructure, e-commerce, and content services
Samsung Electronics Co., Ltd. +4.7%; [-18.1%] +2.2%
Manufactures consumer & industrial electronic products; leading semiconductor producer
Facebook, Inc. +27.6%; [-18.7%] +41.6%
Global social networking, communications, internet-based content, and advertising
Qorvo, Inc. +11.0%; [-30.6%] +21.9%
U.S.-based manufacturer of integrated circuits for wireless communications devices
GDS Holdings Ltd. +58.6%; [+12.4%] +54.5%
Leading developer and operator of data centers in China
NN Group NV +5.8%; [-28.9%] +7.7%
Netherlands-based life and casualty insurer
Alphabet, Inc. +9.4%; [-13.2%] +19.6%
Internet-based search & advertising, content, software applications, and data centers
Capital One Financial Corp. -29.3%; [-50.8%] (per share) +9.1%
U.S. commercial bank
Barratt Developments plc -38.0%; [-44.8%] +8.6%
UK’s largest homebuilder; net balance sheet cash
AbbVie, Inc. +2.9%; [-12.8%] +10.8%
Develops and sells pharmaceutical products
T-Mobile US, Inc. +46.1%; [+7.0%] +8.8%
U.S. mobile communications services provider
OCI NV -38.92%; [-41.4%] +2.5%
Producer & distributor of nitrogen fertilizers and industrial chemical
Citigroup, Inc. -44.5%; [-46.9%] (per share) +8.9%
Multi-national banking & financial services firm
Tesco plc -16.6%; [-16.2%] (divestments) flat
U.K.-based multi-national grocery retailer
L3Harris Technologies, Inc. -12.94%; [-9.0%] +20.7%
U.S. defense and technology company
The TJX Cos., Inc. -8.5%; [-21.4%] +7.5%
Leading off-price apparel & home fashion retailer with > 4,000 stores worldwide, TJ Maxx
Roche Holding AG +8.5%; [+3.2%] +5.3%
Global health care company selling medicines and diagnostic tools
The Charles Schwab Corp. -22.7%; [-29.0%] -1.9%
U.S.-centric wealth management platform, securities brokerage, and bank

Thornburg Global Opportunities Fund’s I share return of 11.62% for the September 2020 quarter exceeded its benchmark (MSCI All Country World Index), which returned 8.13% for the quarter. Performance comparisons of Thornburg Global Opportunities Fund to its benchmark over various periods are shown in the table above.

Top contributors to portfolio performance during the September quarter included Danish wind turbine manufacturer Vestas Wind Systems, India’s digital economy and downstream energy conglomerate Reliance Industries, Alibaba, Facebook, semiconductor components manufacturer Qorvo, Taiwan Semiconductor, Samsung Electronics, Australian mining services firm Mineral Resources and Dutch insurer NN Group. Thirteen equities contributed at least 0.25% to portfolio performance for the quarter, while only two equities (AbbVie and Citigroup) subtracted more than 0.25% from portfolio performance. We sold the remaining portfolio positions in Atlantia and easyJet to fund other opportunities. We added China Telecom to the portfolio in the September quarter. China Telecom is China’s second-largest mobile and fixed-line communications network operator and its largest data center operator. We made other position size adjustments for portfolio diversification purposes and to better balance the downside risk versus upside capital appreciation potential of individual positions.

The table on the following page summarizes major sector weightings within the Global Opportunities portfolio as of 30 September, as well as general directional changes over the course of the September quarter.

We believe the extreme dislocation caused by COVID-19 will be temporary. As we write these words, many countries, including parts of the United States, remain under restrictive orders that reduce normal economic activity. When the pandemic passes, we believe people around the world will continue to buy goods and services and trade with each other, though there will be certain differences from prior norms. The global economy will gradually repair. In the meantime, most governments will make reasonable attempts to bridge the material dislocations we currently witness.

Table 2 | Global Opportunities Fund—Major Sector Weightings and Directional Changes

Sector Weighting as of 30 Sep 2020 Quarterly Movement
Information Technology 17% higher weighting
Communication Services 17% higher weighting
Financials 14% stable weighting
Consumer Discretionary 14% higher weighting
Industrials 11% lower weighting
Health Care 8% lower weighting
Materials 7% stable weighting
Our Investment Framework

Thornburg Global Opportunities Fund seeks capital appreciation from a focused portfolio of global equity investments. We believe the structure of the fund—built on our core investment principles of flexibility, focus, and value—provides a durable framework for value-added investing.

We urge shareholders of the fund to maintain a long-term investment perspective rather than placing too much emphasis on return figures that are available daily, weekly, monthly and quarterly. Clear examples of the need to keep a longer-term investment perspective are illustrated by comparing the 2020 year-to-date returns of your fund’s top 20 holdings as of 31 March 2020, with the returns as of 30 September. Share prices of 14 of these top 20 holdings appreciated at least +10% during the last six months, only one saw a negative total return in $US terms over this period. We continue to follow our core investment principles of flexibility, focus and value, as we have since the fund’s inception.

Important Information

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

Date of data: 30 September 2020—unless otherwise stated

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