PDF - Thornburg Investment Management

JANUARY 2015
4th Quarter 2014 Portfolio Manager Market Commentary
Thornburg International Value Fund
Bill Fries, cfa
Portfolio Manager
Lei Wang, cfa
Portfolio Manager
Best International Large-Cap Growth Fund
International Value Fund
­Performance
A shares, as of December 31, 2014
SINCE
1-YR
3-YR
5-YR 10-YR INCEP
Without sales charge
-5.90% 7.77% 4.31% 5.94% 7.71%
With sales charge
-10.14% 6.14%
3.35%
MSCI EAFE Index
-4.90% 11.06% 5.33%
MSCI AC World ex-U.S. Index
-3.43% 9.49% 4.89%
5.45%
7.41%
4.43%
4.01%
5.59%
5.03%
Periods over one year are annualized. Inception of the A
shares is 5/28/98.
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, visit thornburg.com
or call 877-215-1330. The maximum sales
charge for the Fund’s A shares is 4.50%. The
total annual fund operating expense for A
shares is 1.25%.
As the United States Federal Reserve
begins to move off center stage, the
­
­European Central Bank and Bank of Japan prepare to step into the spotlight. They
were joined this quarter by China’s policy
makers, who sought to stimulate that economy through stronger lending growth, via
lower interest rates. As expected, these
shifts led to a­ nother quarter of heightened
volatility, with the VIX index (a popular
measure for the implied volatility of the
S&P 500 ­Index) spiking to levels not seen
for over two years. The global equity, fixed
income, and (more recently) commodity
markets continue to grapple with the impact of a strong dollar and less intervention by the Fed—in an uneven global-demand environment. During the period,
the Thornburg International Value Fund
(A shares without sales charge) delivered
negative 1.79% in performance versus the
MSCI EAFE Index’s negative 3.57% and
the MSCI ACWI ex-U.S. ­Index’s return of
negative 3.81%. We continue to believe our
diversification enables the portfolio to perform relatively well during periods such as
this, where macroeconomic influences on
the market remain strong.
Fourth-quarter performance was lead by
companies in the technology and consumer
sectors. Top contributors included Chinese
e-commerce giant Alibaba, cable operator
Liberty Global, Japanese entertainment
company Sony, and two semiconductor
stocks, TSMC and NXP. Alibaba became
the largest IPO in history; investors see
potential for the leader in the fast growing Chinese e-commerce market. Liberty
Global climbed on the recent rumors of
a merger with Vodafone Group. The potential merger is seen as being conducive
to Liberty Global’s move toward offering
mobile services across multiple markets.
Sony has shown tangible progress on its
ambitions to exit underperforming businesses and increase profits in its leading
entertainment assets. TSMC and NXP
­
both benefit from increasing penetration of
the electronic devices markets.
Detractors during the fourth quarter
­included oil names Total and BG Group,
Japan’s Nippon Telegraph & Telephone
(NTT), multinational Spanish banking
group Banco Bilbao Vizcaya A
­ rgentaria
(BBVA), and Japan Tobacco. Total and
2 | International Value Fund
TOP 10 HOLDINGS AS OF 11/30/14
China Mobile Communications Corp.
3.2%
ING Groep N.V.
3.2%
Novartis AG
3.2%
Sony
3.2%
Hong Kong Exchanges and Clearing Limited
3.1%
UBS Group AG
3.1%
Sumitomo Mitsui Trust
3.1%
Mitsubishi UFJ Financial Group
3.1%
Intesa Sanpaolo
3.1%
Roche Holding AG
3.0%
BG shares have both come under pressure
along with oil prices. NTT underperformed as its wireless subsidiary Docomo
has made slow progress on its turnaround.
BBVA has declined recently as earnings growth has proved to be lower than
­expected due to i­ncreased competition in
Spain and ­
depreciation of the Mexican
peso. The bank’s recent acquisition of an
additional material stake in Garanti Bank
also put downward pressure on the stock.
Japan ­Tobacco has been weak as the deteriorating economic conditions in Russia and
depreciating ruble have hit its earnings.
Looking forward, global economies are
diverging, with improving economic
­
growth in the United States and weakness
in much of the rest of the world spurring
monetary policy responses. Market r­ eaction
to the Fed’s withdrawal of stimulus remains
to be seen. Through the ­recent transition
period, we have witnessed volatility in all
markets—from currencies and commodities to high-yield bonds and stocks—as
participants attempt to reprice assets in a
post-QE (quantitative easing) world. This
could provide opportunities for us as markets temporarily mis-price high-quality
companies. We also think this turbulence
highlights the importance of remaining
diversified, not only to withstand market
gyrations but also to be in position to capitalize on them.
During this transition, we are also watching the dollar. For dollar-based investors
focused primarily on non-dollar markets, the currency movements will impact
returns. The portfolio has thus far ben­
efited from partial currency hedges and
current consensus expects further dollar
strength in 2015. The impact of the dollar
on oil and other commodities has also been
pronounced during this quarter. This is
­another area where we look for dislocations
of price and value after large moves.
Despite the complicated market environment and the recent weak performance of
international markets, we remain optimistic. The U.S. economy has provided a case
study to central bankers globally that may
be contemplating their own weak growth
outlook. Several have made first steps
­toward more accommodative (and, in some
cases, unconventional) monetary policy. It
may be decades before we can assess any
additional impacts from this style of economic support but we do believe from the
U.S. experiment that monetary stimulus
has so far supported asset prices and, more
importantly for us, equity prices. The valuations in Japan and Europe remain attractive
especially for companies that benefit from a
weaker local currency. Ongoing efforts by
the BOJ (Bank of Japan) and ECB (European Central Bank) to support the economies are likely to weaken currencies further
but could also support broader risk-taking
that eventually leads to acceleration of
economic growth. The combination of
­potential growth and low valuations support overseas developed equity markets.
As we have said over the last few quarters, the outlook remains cloudy, and we
continue to expect periods of volatility as
macroeconomic concerns wax and wane.
We will remain vigilant about maintaining
our diversification across sector, geography,
and baskets. Recent results have shown
that good diversification and adherence to
our three-basket approach prove beneficial
during periods, such as the one we are currently experiencing.
Thank you for investing alongside us in the
Thornburg International Value Fund. n
3 | International Value Fund
Important Information
Investments in the fund carry risks, including possible loss of principal. Special 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 capitalization companies may increase the risk of greater price fluctuations.
Investments in the Fund are not FDIC insured, nor are they deposits of or guaranteed by a bank or any other entity.
The views expressed by the portfolio managers reflect their professional opinions and should not be considered buy or sell recommendations. These views are subject to change.
There is no guarantee the Fund will meet its objectives.
Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.
Representative purchases and sales includes material transactions other than recently purchased securities, which may be excluded for best execution purposes.
Any securities, countries, and sectors mentioned are for informational purposes only. Portfolio holdings are subject to change daily. Under no circumstances does the information
contained within represent a recommendation to buy or sell securities.
The MSCI EAFE (Europe, Australasia, Far East) Index is an unmanaged index. It is a generally accepted benchmark for major overseas markets. Index weightings represent the
relative capitalizations of the major overseas developed markets on a U.S. dollar adjusted basis. The index is calculated with net dividends reinvested in U.S. dollars.
The MSCI All Country (AC) World ex-US Index is a market capitalization weighted index representative of the market structure of 45 developed and emerging market countries in
North and South America, Europe, Africa, and the Pacific Rim, excluding securities of United States’ issuers. The index is calculated with gross dividends reinvested in U.S. dollars.
The S&P 500 Index is an unmanaged broad measure of the U.S. stock market.
The performance of any index is not indicative of the performance of any particular investment. Keep in mind that indices do not take into account any fees and expenses of the
individual investments that they track. You cannot make an investment in any index.
Quantitative Easing is the Federal Reserve’s monetary policy used to stimulate the U.S. economy following the recession that began in 2007/08.
VIX is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied
volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts.
The Thornburg International Value Fund, Institutional class, led the 113-fund international large-cap growth category to take the 2012 Lipper Fund Award for the 10-year period ended
11/30/2011. Lipper Fund Awards are granted annually to the fund in each Lipper classification that consistently delivered the strongest risk-adjusted performance (calculated with
dividends reinvested). Awards are given for three-year, five-year, and ten-year periods. The fund did not win the award for other time periods or subsequent years. Class I shares may
not be available to all investors and minimum investments may be higher.
Established in 1988, the Morningstar Fund Manager of the Year Award recognizes portfolio managers who demonstrate excellent investment skill and the courage to differ from the
consensus. To qualify for the award, managers must have not only a great year, but also must have a record of delivering outstanding long-term performance and of aligning their
interests with shareholders’. The Fund Manager of the Year Award winners are chosen based upon Morningstar’s proprietary research and in-depth evaluation by its senior analysts.
Thornburg has not won the Fund Manager of the Year award in subsequent years.
Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus or summary prospectus containing
this and other information, contact your financial advisor or visit thornburg.com. Read them carefully before investing.
Thornburg Securities Corporation, Distributor | 2300 North Ridgetop Road | Santa Fe, New Mexico 87506 | 877.215.1330
1/9/15
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