Investment Income Builder Fund (UCITS) - Commentary

3rd Quarter 2021

Jason Brady, CFA
Jason Brady, CFA
President and CEO
Matt Burdett
Matt Burdett
Portfolio Manager and Managing Director
Ben Kirby, CFA
Ben Kirby, CFA
Co-Head of Investments and Managing Director
Brian McMahon
Brian McMahon
Vice Chairman and Chief Investment Strategist
Portfolio managers are supported by the entire Thornburg investment team.
1 October 2021

This Portfolio Manager Commentary on Thornburg Investment Income Builder is published amidst the ongoing developments associated with the global Coronavirus pandemic, Covid-19. Government bodies around the world have taken unusual steps to control the disease and mitigate the consequences of related economic disruption in order to keep the basic structure of the global economy in place as we resume normal economic activity now that the pandemic appears to be better controlled.

The fund paid an ordinary quarterly dividend of $0.04 per I share in the quarter ending 30 September 2021, down modestly from $0.05 dividend in the year ago quarter. The fund paid $0.393 per I share for the trailing four quarters, up slightly versus the prior year comparable period.

The net asset value of Investment Income Builder’s I shares decreased by $0.28 per share ($20.07 to $19.79) during the September quarter. Your fund has recovered more than all of the share price decline that occurred from 14 February 2020 to 31 March 2020 as the Covid-19 pandemic gained momentum globally and set off a chain reaction of selling across a range of financial assets.

Investment Income Builder’s total return of -1.36% (I shares, Distributing) for the September quarter trailed its blended benchmark (75% MSCI World Index and 25% Bloomberg U.S. Aggregate Bond Index), which returned 0.03% for the quarter. For the 12 months ending 30 September 2021, Investment Income Builder’s I share return of 28.28% slightly underperformed the blended benchmark return of 20.89%. Performance comparisons of Investment Income Builder to its blended benchmark over various periods are shown elsewhere on this web site.

Listed on the following page in descending order are the 25 largest equity holdings in the fund at quarter end, along with their 2020 calendar year and 2021 share price changes in $US through 30 September. Also noted are dividend yields at closing 30 September 2021 stock prices. Together, these 25 firms comprise 65% of the fund’s total assets. Cash comprise around 9% of fund assets, and 25 other common equities comprise a total of approximately 26% of fund assets. Individual position sizes of the 25 equities listed range from 3.7% (Roche Holding) of fund assets to approximately 1.7% (BNP Paribas) for those shown near the bottom of the list.

The reader will notice a significant number of telecommunications, communications infrastructure, financial, and health care firms among these top 25 holdings, as well as other providers of various ingredients important to modern life. Aside from the fact that they have paid attractive dividends, the Covid crisis reinforced the essential nature of the products and services they provide.

Table 1 | Investment Income Builder Fund—Top 25 Equity Holdings (as of 30/9/21)

(Together, these 25 investments account for approximately 65% of fund assets as of 30 September 2021; cash, comprise 9% of assets, and 25 other equity investments accounted for 26% of fund assets.)

Name of Company 2020 Year Price Change YTD 2021 Price Change +/- at 30 Sep. 2021 Dividend Yield at 30Sep. 2021, Price
Roche Holding AG. 7.9% 4.6 2.60%
Global health care company develops and sells medicines and diagnostic tools
NN Group N.V. 15.8% 20.6 5.30%
Netherlands-based life and casualty insurer, with market leading positions in Netherlands
Taiwan Semiconductor Manufacturing Co. Ltd 70.5% 10.5 1.90%
Leading semiconductor chip foundry in the world, fabricating chips used in many digital devices
AstraZeneca plc -0.90% 19.8 2.28%
Major research-driven pharmaceuticals firm, selling products in more than 100 countries
Atlantia SpA -19.7% 7.57 0.00%
Italian infrastructure holding company
CME Group, Inc. -8.6% 6.2 3.13%
Operates exchanges that trade futures contracts & options on rates, F/X, equities, commodities
Samsung Electronics Co. Ltd. 54.2% -15.9 4.06%
Manufactures consumer & industrial electronic products; leading semiconductor producer
Stellantis NV 20.8% 10.5 0.00%
Italian-American multi-national auto company
Broadcom, Inc. 38.5% 10.7 2.97%
Develops and markets digital and analogue semiconductors
Enel SpA -28.3% -24.3 5.50%
Generates, distributes, and sells electricity and gas in Southern Europe & Latin America
Orange S.A. -19.2% -9.1 7.49%
Multi-national telecommunications network operator, home market is France
AbbVie, Inc.. 21.0% 0.7 4.82%
Develops and sells pharmaceutical products
Pfizer, Inc. -0.9% 16.8 3.60%
Global health care company develops and sells medicines, vaccines, biologic therapies
JPMorgan Chase & Co. -0.9% 28.8% 2.44%
U.S.-based global financial services conglomerate serving business & individuals
TotalEnergies SE -21.9% 10.8% 6.40%
Produces, refines, transports, and markets oil and natural gas products globally
QUALCOMM, Inc. 72.7% -15.3% 2.11%
Develops and delivers key components for digital wireless communications products
Merck & Co., Inc. -10.1% -3.7% 3.46%
Global health care company develops and sells medicines, vaccines, biologic therapies
The Home Depot, Inc. 21.6% 23.6% 2.01%
Largest U.S. home improvement retailer, sells hardware & building materials
Royal Dutch Shell plc -40.4% 26.0% 3.20%
British-Dutch multinational oil and gas company
Deutsche Telekom AG -12.5% 9.5% 3.46%
Multi-national telecommunications network operator, majority owner of T-Mobile USA
E.ON SE -4.8% 9.6% 4.26%
European electric utility company based in Germany
China Mobile Ltd. -32.5% 6.6% 7.22%
World’s largest mobile telecommunications network operator, net cash balance sheet
Assicurazioni Generali SpA -15.0% 21.4% 5.49%
Italy-based multinational life & property/casualty insurers
Electricite de France SA 29.9% -21.8% 1.71%
French electric utility company
BNP Paribas -10.3% 21.7% 2/76%
French international banking group

These are not trivial businesses. These firms occupy important positions in their respective markets, and they tend to be well capitalized.

We have increased your portfolio’s exposure to dividend paying firms that we believe have resilient businesses with strong capital structures. We have reduced or eliminated exposures to less resilient businesses. Compare the sector allocations of the equities in the Income Builder portfolio from 31 March 2020 to 30 September 2021:

Table 2 | Sector Weights (%)

Sector 31/3/20 30/6/20 30/9/20 31/12/20 31/3/21 30/6/21 30/9/21 From 31/3/20 to 30/9/21 +/- Weighting
Financials 19.47 20.18 19.96 19.96 19.94 19.29 18.66 -0.81
Health Care 17.30 15.72 16.18 15.68 15.71 16.79 15.86 -1.44
Information Technology 11.12 13.80 16.22 16.82 14.79 14.60 13.07 1.95
Industrials 7.44 7.77 8.16 8.48 9.40 8.79 8.44 1.01
Communication Services 13.01 11.48 10.20 9.00 9.38 8.67 7.84 -5.16
Utilities 7.82 7.92 8.34 8.97 8.00 8.39 7.27 -0.55
Energy 8.00 6.09 5.08 6.04 6.53 6.34 6.39 -1.61
Consumer Discretionary 4.27 4.90 5.34 4.98 5.16 5.35 5.09 0.82
Consumer Staples 5.27 2.84 2.63 4.63 4.50 4.29 4.04 -1.23
Materials 2.58 2.54 2.50 3.03 3.04 3.08 2.62 0.04
Real Estate 1.52 1.51 1.51 1.48 1.15 1.23 1.17 -0.35

Five of 11 sectors of the MSCI World Index delivered positive returns for the September quarter, ranging from +3% for the information technology sector to approximately 0.5% for the utilities sector. The six negative sector returns within the Index portfolio ranged from -1% for industrials to -5% for materials businesses. The MSCI World Index comprises 75%, and the entire equity portion, of the Thornburg Investment Income Builder’s global performance benchmark. In the Income Builder portfolio, 11 equity investments contributed positive returns of at least 0.10% to overall portfolio performance during Q3 2021. (These most positive contributors included Dutch insurer NN Group, JPMorgan Chase, UK retailer Tesco, gas & oil producer and processor TotalEnergies, and Pfizer). 10 of the fund’s equity investments made negative September quarter contributions to portfolio performance of below -0.15%. These detractors from fund performance included Samsung Electronics, semiconductor provider Qualcomm, exchange operator CME Group, and European utilities Enel and Endesa.

We are optimistic about the future return potential of Thornburg Investment Income Builder’s assets. Why? Virtually all the businesses in your portfolio retain their market positions providing important products and services that generate cash flows to pay attractive dividends. In addition, we believe they are valued very attractively in relation to their own histories and relative to other assets. The weighted average price/operating cash flow ratio for Thornburg Investment Income Builder’s equity portfolio tabulated using Bloomberg reported trailing year results was approximately 7.2x as of 30 September, significantly below the 12.6x price/cash flow ratio of the MSCI All Country World Index. Income Builder’s 5.4% weighted average equity portfolio dividend yield was more than twice the 1.97% dividend yield of the MSCI Index. We believe investors will direct capital in the coming quarters into dividend paying stocks, supporting prices of these.

Important Information

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

Date of data: 30 October 2021—unless otherwise stated

This does not constitute or contain an offer, solicitation, recommendation or investment advice with respect to the purchase of the Funds described herein or any security. The Fund's shares may not be sold to citizens or residents of the United States or in any other state, country or jurisdiction where it would be unlawful to offer, solicit an offer for, or sell the shares. For information regarding the jurisdictions in which the Fund is registered or passported, please contact Thornburg at contactglobal@thornburg.com or +1.855.732.9301. Fund shares may be sold on a private placement basis depending on the jurisdiction. This should not be used or distributed in any jurisdiction, other than in those in which the Fund is authorized, where authorization for distribution is required. Thornburg is authorized by the Fund to facilitate the distribution of shares of the Fund in certain jurisdictions through dealers, referral agents, sub-distributors and other financial intermediaries. Any entity forwarding this, which is produced by Thornburg in the United States, to other parties takes full responsibility for ensuring compliance with applicable securities laws in connection with its distribution.

The Fund is a sub-fund of Thornburg Global Investment plc ("TGI"), an open-ended investment company with variable capital constituted as an umbrella fund with segregated liability between sub-funds, authorized and regulated by the Central Bank of Ireland ("CBI") as an Undertaking for Collective Investments in Transferable Securities ("UCITS"). Authorization of TGI by the CBI is not an endorsement or guarantee by the CBI nor is the CBI responsible for the contents of any marketing material or the Fund's prospectus, supplement or applicable Key Investor Information Document ("KIID"). Authorization by the CBI shall not constitute a warranty as to the performance of TGI and the CBI shall not be liable for the performance of TGI.

Before investing, investors should review the Fund's full prospectus and supplement, together with the applicable KIID and the most recent annual and semi-annual reports. Copies of these documents may be obtained free of charge from State Street Fund Services (Ireland) Limited, by visiting www.thornburgglobal.com or by contacting the local paying or representative agent or local distributor in the jurisdictions in which the Fund is authorized for distribution.

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.

No securities commission or regulatory authority has in any way passed upon the merits of an investment in the Fund or the accuracy or adequacy of this information or the material contained herein or otherwise. Neither this or the Offering Documents have been approved in any jurisdiction where the Fund has not been registered for public offer and sale. This information is not, and under no circumstances is to be construed as the Offering Documents, a public offering or an offering memorandum as defined under applicable securities legislation. Application for shares may only be made by way of the Fund's most recent Offering Documents.

For Denmark: The Fund is only available to professional investors.

For Germany: The local information agent is GerFIS - German Fund Information Service UG (Haftungsbeschränkt), which may be contacted at Zum Eichhagen 4, 21382 Brietlingen, Germany.

For Hong Kong: This material has not been reviewed nor endorsed by any regulatory authority in Hong Kong, including the Securities and Futures Commission, nor has a copy been registered with the Registrar of Companies in Hong Kong. Hong Kong residents are advised to exercise caution in relation to this information. This is directed at and intended for "Professional Investors" within the meaning of Part1 of Schedule 1 to the Securities and Futures Ordinance.

This material is for the confidential use of the recipient only and should not be given, forwarded or shown to any other person (other than employees, agents or consultants in connection with the recipient's consideration thereof).

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.

For Italy: The Fund is only available to professional investors.

For Norway: The Fund is only available to professional investors.

For Singapore: Recipients of this information in Singapore should note shares of the Fund may not be offered or sold, nor may this or any other information or material in connection with the offer or sale of such share be circulated or distributed, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A(1)(c) of the Securities and Futures Act (Cap. 289) of Singapore) (the SFA), (ii) to a relevant person as defined in Section 305 of the SFA or any person pursuant to an offer referred to in Section 305(2) of the SFA and in accordance with the conditions specified in Section 305 of the SFA, or (iii) pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

For Switzerland: The Fund is authorised by the Swiss Financial Supervisory Authority (FINMA) for distribution to qualified and non-qualified investors in Switzerland. The Swiss representative is Carnegie Fund Services S.A., 11, rue du Général-Dufour, 1204 Geneva, Switzerland, web: www.carnegie-fund-services.ch. The Swiss paying agent is Banque Cantonale de Genéve, 17, quai de l'Ile, 1204 Geneva, Switzerland. Investors in Switzerland can obtain the documents of the Company (each in their latest form as approved by FINMA, in German), such as the Prospectus, the KIIDs, the Memorandum and Articles of Association, the semi-annual and annual reports, and further information free of charge from the Swiss representative.

For United Kingdom: This communication is issued by Thornburg Investment Management Ltd. ("TIM Ltd.") and approved by Robert Quinn Advisory LLP which is authorised and regulated by the UK Financial Conduct Authority ("FCA"). TIM Ltd. is an appointed representative of Robert Quinn Advisory LLP.

This material constitutes a financial promotion for the purposes of the Financial Services and Markets Act 2000 (the "Act") and the handbook of rules and guidance issued from time to time by the FCA (the "FCA Rules"). This material is for information purposes only and does not constitute an offer to subscribe for or purchase any financial instrument. TIM Ltd. neither provides investment advice to, nor receives and transmits orders from, persons to whom this material is communicated nor does it carry on any other activities with or for such persons that constitute "MiFID or equivalent third country business" for the purposes of the FCA Rules. All information provided is not warranted as to completeness or accuracy and is subject to change without notice.

This communication is exclusively intended for persons who are Professional Clients or Eligible Counterparties for the purposes of the FCA Rules and other persons should not act or rely on it. This communication is not intended for use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.

Please see our glossary for a definition of terms.