1st Quarter 2019

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For the first quarter of 2019, the Thornburg All Cap Growth Strategy had a total return of 18.06% (net of fees), outpacing the benchmark Russell 3000 Growth Index, which returned 16.18%. Strong returns for the quarter were the highest seen since early 2009, as measured by the Russell 3000 Growth Index. Growth was a clear leader for the period, with the Russell 3000 Growth outperforming its Value counterpart by more than four percent. A heightened interest in growth-oriented stocks was fueled by low interest rates, low inflation and steady growth. Fed Chairman Jerome Powell made a dovish pivot early in the year signaling lower- for-longer interest rates. The change in tone and outlook from the Fed helped propel technology companies to the top-performing spot within the Russell 3000 Growth Index, up more than 20 percent. This marked a significant change from the previous quarter where technology was the largest detractor within the index. A downshift in the interest rate outlook helped propel real estate to the second-highest returning sector for the quarter.

Performance Discussion


Past performance does not guarantee future results. To obtain the calculation methodology and a list showing the contribution of each holding in the representative account to the overall account's performance during the reporting period, please email a request to bdg@thornburg.com. The holdings identified do not represent all of the securities purchased, sold or recommended for advisory clients.

Information technology was the top-performing sector within the portfolio. This was due to an overweight relative to the benchmark combined with strong stock selection. Stock selection within consumer discretionary, consumer staples and industrials also benefited relative performance. Detracting from relative performance was stock selection within energy, materials and financials.

Top performers for the quarter included Worldpay Inc., FleetCor Technologies Inc., SS&C Technologies, Alexion Pharmaceuticals and Amazon.

Worldpay is a leading global payments provider. During the quarter, Worldpay had two meaningful catalysts: reporting better-than-expected fourth quarter 2018 earnings results and accepting an offer to be fully acquired. We continue to hold the shares, which will convert to the acquiring company’s shares upon deal completion, and will evaluate the outlook of the combined entity.

FleetCor Technologies is a leading vertical payments provider. In the period, FleetCor announced better-than-expected earnings and provided strong forward guidance for 2019 as they saw strong fundamental tailwinds exiting 2018. We continue to like the secular trends in FleetCor’s end markets and how they are positioned to capture market share.

SS&C is the largest provider of software for fund administration in the alternative asset management industry. Shares performed well as the company achieved better- than-expected synergies at DST, the largest acquisition they had completed in their long history. Further, the company announced several acquisitions during the period that appear promising.

Alexion rebounded after a sharp and broad-based selloff of the biotech sector in the fourth quarter. During the first quarter, Alexion reported results that exceeded market expectations as well as held an investor day where company management made a compelling case regarding the durability of the complement franchise.

Amazon re-rated along with broad market gains during the quarter. Fundamental results remain solid, and we believe the long-term opportunities for Amazon in retail, web services and advertising remain bright.

Bottom performers this quarter were CME Group, Inc.; Inogen, Inc.; Nevro Corp.; HealthEquity, Inc. and CF Industries Holdings, Inc.

As the largest derivative exchange in the world, CME is uniquely well-positioned to capitalize on the structural growth of rising usage of derivatives. In addition to its attractive long-term growth potential, CME has cyclical tailwinds due to rising rates and volatility, which drive higher volumes. Volumes have been down year to date as interest rate hike expectations have been scaled back and financial market volatility has been low.

Inogen shares fell as company commentary during the earnings call was rather cautious and highlighted that their largest customer in the B2B segment was taking a pause in terms of purchasing new Portable Oxygen Concentrator units. Faced with limited visibility in terms of when sales growth will rebound, investors have sold the shares into this near-term uncertainty.

Nevro is a medical-device company that has developed a spinal cord stimulation system for the treatment of chronic pain. It has been a disappointing stock. Our thesis was based on our belief that a non-opioid treatment of chronic pain would be better received by patients and lead to growth for Nevro. Although early on Nevro experienced explosive growth, the fade in growth rates has been more severe than we expected.

HealthEquity is one of the largest administrators of Health Savings Accounts in the U.S. After having sold-off on a weaker-than-expected interest rate environment, shares rebounded at year end. However, new account additions were pre-announced weaker-than-expected in January.

CF Industries is North America’s top producer of nitrogen-based fertilizers. A top contributor in 2018, CF fell about 5% in the first quarter of 2019 as cold and wet weather throughout the Midwest delayed the start of this year’s agricultural planting season.

As economic activity matures, many economists expect the outlook for growth and momentum stocks to remain favorable. Tailwinds for equities include a dovish turn by global central banks, an increase in China stimulus and easing China–U.S. trade war tensions.

Since we are not experts on predicting where the S&P 500 Index will end 2019, we would rather let the market forecasters debate which inning of the current market cycle we are in. Instead, we will continue seeking out ownership of high-quality businesses with exceptional long-term growth profiles.

To the extent debates around macroeconomic data, Fed actions, and politics create volatility during 2019, we will be opportunistic in adding more of these attractive businesses at discounted valuations.

We thank you for investing in the Thornburg All Cap Growth Strategy.

Important Information

Performance data for the All Cap Growth Strategy is from the All Cap Growth Composite, inception date of January 1, 2001. The composite includes non-wrap discretionary accounts invested in the All Cap Growth Strategy. Returns are calculated using a time-weighted and asset-weighted calculation including reinvestment of dividends and income. Periods less than one year are not annualized. Individual account performance will vary. The performance data quoted represents past performance; it does not guarantee future results. Gross of fee returns are net of transaction costs. Net of fee returns are net of transaction costs and investment advisory fees. For periods prior to 2011, net returns for some accounts in the composite also reflect the deduction of administrative expenses. Thornburg Investment Management Inc.’s fee schedule is detailed in Part 2A of its ADV brochure. Performance results of the firm's clients will be reduced by the firm's management fees. For example, an account with a compounded annual total return of 10% would have increased by 159% over ten years. Assuming an annual management fee of 0.75%, this increase would be 142%.

Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 3/31/19.

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.

Holdings may change daily and may vary among accounts.

The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account's portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account's entire portfolio and in the aggregate may represent only a small percentage of an account's portfolio holdings. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

Portfolio holdings and characteristics shown herein are from a representative account managed within the investment composite. The representative account is selected based on account characteristics that Thornburg believes accurately represent the investment strategy as a whole. Should these characteristics change materially, Thornburg may select a different representative account. Holdings may change daily and may vary among accounts, which may contribute to different investment results. The representative account information is supplemental to the strategy’s composite and GIPS compliant presentation.

Portfolio construction will have significant differences from that of a benchmark index in terms of security holdings, industry weightings, asset allocations and number of positions held, all of which may contribute to performance, characteristics and volatility differences. Investors may not make direct investments into any index.

Please see our glossary for a definition of terms.