“We like to find industry leaders when they are out of favor, offering value in the context of long-term prospects. We believe diversification among three types of stocks (basic value, consistent earners, and emerging franchises) provides the opportunity to produce positive total returns over time.”
— Lei Wang and Di Zhou
We focus on constructing a core portfolio with potential to outperform benchmarks over time—with lower volatility. One way we mitigate volatility is via Thornburg’s three-basket diversification construct:
Basic Value: Companies generally operating in mature industries and which generally exhibit more economic sensitivity and/or higher volatility in earnings and cash flow.
Consistent Earners: Companies which generally exhibit predictable growth, profitability, cash flow and/or dividends.
Emerging Franchises: Companies with the potential to grow at an above average rate because of a product or service that is establishing a new market and/or taking share from existing participants.
Some value managers who don’t diversify across a basket structure may have a narrow view of valuation, with a single set of metrics or constraints by which they evaluate stocks. Our view of valuation is flexible and varies across basket structures. It is a broader, more nuanced, less formulaic take.