Thornburg Global Opportunities Fund

4th Quarter 2019

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.

December 31, 2019

The Thornburg Global Opportunities Fund delivered strong returns in fourth quarter 2019. Against a solid market backdrop for virtually all financial assets, your fund’s share price rose steadily and produced a total return of 14.50% (I shares) versus the 8.95% return for the benchmark MSCI All Country World Index (ACWI). For calendar year 2019 the total return for the fund was 28.74%, outpacing the 26.60% result for the ACWI benchmark.

In July we marked the 13th anniversary of the fund’s inception. Although fourth quarter 2019 and calendar 2019 were rewarding, we continue to be focused on capital appreciation of your investment over the long term. Twelve months is a short measurement period for any investment. From its inception on July 28, 2006, through December 2019, the Thornburg Global Opportunities Fund has outpaced the ACWI by an average margin of 315 basis points per year, resulting in a total cumulative return since inception of 237.65% (I shares), versus 128.24% for the ACWI index.

Our Investment Framework

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—provides a durable framework for value-added investing.

In our fourth quarter 2018 portfolio commentary, we detailed the 20 worst-performing portfolio investments of 2018 and the evolution through 2018 of expected future earnings for these investments. Overall, the evolution of expected earnings was better than the share price performance of these investments in 2018. We made adjustments that you would expect from active portfolio managers but did not panic solely due to calendar 2018 share price movements. What happened with these investments in 2019?

  • For calendar year 2019, these 20 investments contributed weighted average total returns of 29.8% to your portfolio’s annual performance, with 17 of these 20 delivering positive contributions for the year.
  • Of the three that did not make positive contributions to 2019 portfolio performance, two (Bayer and Peabody Energy) were sold completely to make room for other opportunities, including some that will be highlighted in subsequent paragraphs. MGM China Holdings remains in the portfolio, as we expect significant earnings growth in 2020 and 2021.
  • Fourteen of these worst-performing 2018 investments remain in the portfolio. Though these recovered to varying degrees in 2019, we believe these 14 have significant additional return potential. We will monitor their progress and adjust portfolio weightings as appropriate.
  • The remaining four worst-performing 2018 investments that made positive contributions to your fund’s 2019 performance were sold to make room for other opportunities that we believe have greater capital appreciation potential. These include AENA, Baidu, BNP Paribas and Zayo Group, the latter being acquired during 2019.
Fourth Quarter Review

In assessing fourth quarter 2019 performance of the Thornburg Global Opportunities Fund, it is constructive to consider the performance in USD of the sector components of the ACWI, the portfolio’s benchmark:

  • All 11 index sectors showed positive total returns for fourth quarter 2019, with sector results ranging from approximately 2% (utilities) to more than 16% (financials and information technology). In general, sectors that are more sensitive to fluctuations in economic activity performed better. For the Thornburg Global Opportunities Fund, our investments in information technology firms were the largest contributors to returns at 4.17% for the quarter, followed by our investments in industrials, which contributed 3.61%. The fund had only one relatively small utility investment, France’s EDF, which detracted modestly from results in the quarter.
  • Relative to the MSCI ACWI Index, the portfolio was significantly overweight the industrials and communication services sectors, and underweight investments in the information technology, financial, consumer discretionary, health care, utilities and consumer staples sectors.
  • Portfolio performance relative to the index in fourth quarter 2019 was aided by outperformance from holdings in the information technology, industrials, communication services, consumer discretionary, financials and energy sectors. Our quarterly performance relative to the ACWI was hindered by comparative underperformance from holdings in the utilities, consumer staples, materials and health care sectors.
  • Eighteen of the 33 portfolio investments contributed positive returns of at least 0.25% (25 basis points) during fourth quarter 2019. Only one investment contributed returns of negative 0.25% or worse. For calendar year 2019, 27 investments contributed positive returns of at least 0.25%, while three investments detracted from portfolio performance with returns below negative 0.25%.

Portfolio holdings in the information technology sector were the largest contributors to portfolio performance, led by Qorvo Inc., a global leader in the design and manufacture of radio frequency chips. Demand for 5G smartphones and other wireless communications devices has accelerated meaningfully in recent months, boosting Qorvo’s growth trajectory. Beijing-based GDS Holdings, a leading owner and operator of data centers in China, also contributed, as they reported robust customer demand.1

The industrials sector was another bright spot for portfolio performance: European airlines Ryanair and easyJet rallied sharply as both appear poised to benefit from higher fares due to lower capacity growth and competitor bankruptcies. Vestas Wind Systems, a detractor in the third quarter, rebounded nicely. Italian toll road operator Atlantia modestly detracted from results.

Among other portfolio holdings, a significant contributor was DaVita, a leading U.S. provider of dialysis services for patients with chronic kidney disease. We bought DaVita last summer and its recent share price rally was underpinned by management’s refocusing on its core business. Alibaba Group, Facebook, Citigroup, Reliance Industries, Mineral Resources, Capital One and Alphabet each made strong contributions to portfolio performance during the December quarter.

The largest detractor during the quarter was European chemical group OCI N.V., which is currently seeing cyclical softness in fertilizer and industrial chemical prices. Other detractors included CF Industries, a leading U.S. producer of nitrogen fertilizer for farming. Fertilizer demand has been dampened recently by very cold and wet weather in the U.S. corn belt. T-Mobile shares have underperformed recently due to uncertainty regarding regulatory approval of their attempted merger with Sprint. We expect the uncertainty to clear up in the first half of 2020. Finally, we received a small amount of Dish Network’s (DISH) shares in a spinout transaction from a related company that we own, Echostar. We sold our DISH shares shortly after we received them.

Top Five Country Weights (as of 12/31/19, percentage of portfolio) (Representative Account)

COUNTRY AVG. PORTFOLIO WEIGHTING
United States 36.5%
China 9.0%
Hong Kong 8.2%
Italy 7.3%
Netherlands 7.3%

A weaker U.S. dollar enhanced the value of our non-U.S. holdings during the quarter. We hedged a portion of the currency exposure of our holdings denominated in the Australian dollar, the British pound and the euro. These hedges detracted slightly from results relative to the unhedged ACWI index, but we are focused on adding value with stock selection rather than currency fluctuations.

Where do we see global equity markets going in 2020? We are primarily focused on the key operational issues of the businesses we hold in the portfolio, and we are generally optimistic about the potential for these businesses to grow revenue, earnings and cash flows. That noted, the macroeconomic backdrop is relevant for investor sentiment and earnings multiples. The year 2019 saw highly-accommodative monetary policy, and central banks seem prepared to continue this theme in 2020. The tailwind of easy money was at least partially offset in 2019 by the headwind of international trade tensions. U.S. politics and other geopolitical developments could present both challenges and opportunities in 2020 and beyond. We will monitor these to evaluate potential impacts on the businesses in the Global Opportunities portfolio.

We believe people around the world will continue to buy goods and services and trade with each other. Importantly, overall global consumer spending appears poised to grow in 2020, along with the global population, industrial production, energy consumption, financial products, etc. Despite uncertainty around macroeconomic policies, employment and wage growth trends remain positive, consumer debt is under control and many governments around the world have room to implement expansionary fiscal policies.

Since the inception of the Thornburg Global Opportunities Fund in 2006, our strategy has been based on fundamental analysis of individual businesses, not macroeconomic forecasts per se. Over the years we have managed the portfolio through a wide variety of macroeconomic settings. We construct the portfolio on a diversified basis with risk management in mind. We believe the confluence of technological change, economic growth and other factors—including some of those cited above—will create opportunities for longterm investors in the years ahead.

We urge shareholders to maintain a longterm investment perspective rather than placing too much emphasis on return figures that are available daily, weekly, monthly and quarterly. We continue to follow our core investment principles of flexibility, focus and value, as we have since the fund’s inception back in 2006.

1. For more discussion of portfolio holdings Qorvo, GDS and others, see this recent interview: The Next Level, an interview with portfolio managers of Thornburg Global Opportunities Fund.

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, see the mutual funds performance page or call 877-215-1330. The maximum sales charge for the Fund’s A shares is 4.50%.

Important Information

Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 12/31/19.

Investments carry risks, including possible loss of principal. Additional risks may be associated with investments outside the United States, especially 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 FDIC 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.

Funds invested in a limited number of holdings may expose an investor to greater volatility.

The performance of any index is not indicative of the performance of any particular investment. Unless otherwise noted, index returns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. Investors may not make direct investments into any index.

There is no guarantee that the Fund will meet its investment objectives.

Please see our glossaryglossary (www.thornburg.com/glossary) for a definition of terms.

Thornburg mutual funds are distributed by Thornburg Securities Corporation.

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