1st Quarter 2019

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For the first quarter of 2019, the Thornburg International Growth ADR Strategy– Wrap returned 14.17% (net of fees), outpacing its benchmark, the MSCI All Country World ex-U.S. Growth Index, which returned 12.31%.

The MSCI All Country World ex-U.S. Growth Index posted its best quarterly return since mid-2010, ahead of the MSCI ACWI ex-U.S. Value Index by nearly 4%.

On a country basis, China, Japan and Switzerland were the largest contributors. Of 46 countries represented, Malaysia, Qatar and Turkey were the only countries within the index with negative returns.

From a sector perspective, consumer discretionary, information technology and industrials were most additive. There were no sectors with negative returns for the quarter. Utilities, the smallest sector within the index by weight, was the only sector with returns less than 10 percent.

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.

Performance Discussion

At the start of the year, the risk of a recession appeared low, and we began to see select opportunities emerge. With the Fed turning dovish on rates, fresh monetary and fiscal stimulus measures coming out of China and progress on U.S.–China trade negotiations, our expectation was for a much-improved 2019.

The strategy had its best quarterly return since early 2012. While much has been said regarding Brexit and how it might negatively impact the United Kingdom, our U.K. holdings here were strongly positive and had the largest overall contribution from a country perspective.

Portfolio holdings in China delivered the second-largest impact. Conversely, holdings domiciled in France and Mexico detracted the most on a relative basis.

Top performers for the period were Worldpay, Inc., Alibaba Group Holding Ltd., Just Eat plc, TAL Education Group and ASOS plc.

Worldpay is a leading global payments provider. During the quarter, share performance was driven by two meaningful catalysts: better-than-expected fourth quarter 2018 earnings results and management’s acceptance of an offer to be fully acquired by Fidelity National Information Services (FIS). We continue to hold the shares, which will convert to FIS shares upon deal completion, and will evaluate the outlook of the combined entity.

Alibaba shares rebounded as the company reported resilient results that exhibited continued market share gains. With ongoing government support for the economy and recent progress in U.S.–China trade negotiations, investors are more optimistic about China’s economic outlook and the underlying earnings growth for companies operating in China.

Just Eat reported strong performance for the full year and, just as importantly for investors, outlined a clear path towards profitability for their own delivery initiatives. Furthermore, management guided towards next year as the peak year for investment and a return to margin expansion in 2020. Investors welcomed this clarity in terms of the company’s medium- term strategic plans, sending the stock higher in the quarter.

TAL Education Group provides afterschool tutoring services in China. With rising urbanization, favorable demographics and intense competition for admission into top schools in China, TAL benefits from a supply-demand imbalance, coupled with a growing market share resulting from favorable brand recognition. The stock rose modestly in a difficult fourth quarter for the market as earnings beat expectations. During the first quarter, the stock rose more than 35% as China’s markets recovered, revenues rose 35% and margins improved.

ASOS shares rallied as fundamentals appear to have stabilized post the profit warning last quarter and shares have re-rated modestly from historically low levels. Although ASOS has a lot more work ahead of it to regain investor confidence and prove that the profit warning was just a temporary hiccup, we believe the company is moving in the right direction and could have significant upside if the company can successfully execute.

Bottom performers for the period included Wirecard AG, EssilorLuxottica, Alsea, Activision Blizzard, Inc. and ZOZO, Inc.

Wirecard benefits from the inevitable growth in online payments by providing software and information technology for secure online payment processing, as well as credit card sales for online and terminal payments. Shares were weak during the quarter due to issues raised around potential fraudulent accounting stemming from their Singapore offices. The company has denied any wrongdoing, and nothing material was found by the law firm they hired to investigate.

EssilorLuxotica is the combination of two of the largest players in the eyeglass frames and lens market. A merger of the two companies was expected to result in synergies and cost savings, however, approval of the merger and subsequent integration has taken longer than expected.

Alsea shares have declined due to a storm of events that weighed on consumer sentiment and margins. These included gas shortages in Mexico, a recently completed acquisition of restaurants in Europe that was poorly received by investors due to elevated levels of debt and an untimely management change; the CEO abruptly resigned during the quarter.

Activision is a leading publisher and developer of video games. Management recently reported an earnings beat but did not raise guidance to meet high investor expectations. The fourth quarter of 2018 was also one of the strongest release slates of AAA video games in many years, adding to concerns that time spent was being spread out across more titles. We believe these are largely temporary issues and that the outlook for Activision and the video game industry remains compelling longer term.

ZOZO reported results that saw operating losses widen dramatically, due to costs associated with ramping their private brand business. Outside of the private brand, the core business saw merchandise value growth disappoint and some brands have recently decided to leave the platform. Given the execution issues and decelerating growth trends, we sold out of the position.

(Dec 2018–Feb 2018)
Siemens Healthinee ZOZO, Inc.
  PriceSmart, Inc.

Notable purchases and sales includes material transactions other than recently purchased securities, which may be excluded for best execution purposes.



As the pace of economic activity matures, many economists expect the outlook for growth and momentum stocks to remain favorable. Low interest rates, low inflation and steady growth should benefit growth stocks. Additional tailwinds for equities include a dovish turn by global central banks, an increase in stimulus from China and easing U.S.–China trade war tensions.

Since we are not experts on predicting where the market will end 2019, we would rather let the forecasters debate which inning of the current market cycle we’re 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 to more of these attractive businesses at discounted valuations.

We thank you for investing in Thornburg International Growth ADR Strategy– Wrap.

Important Information

Performance data for the International Growth ADR Strategy is from the International Growth ADR Wrap Composite, inception date of May 1, 2010. The International Growth ADR Wrap Composite includes discretionary wrap accounts invested in the International ADR 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. “Pure” Gross returns do not reflect the deduction of any expenses, including trading costs and are supplemental to net returns. Beginning January 1, 2009, net returns reflect the deduction of the maximum total wrap fee which is currently 3% per annum. Net returns are derived from subtracting 1/12th of 3% from each account's monthly gross return. The total wrap fee includes all charges for the trading costs, portfolio management, custody and other administrative fees. Prior to January 1, 2009 net returns reflect actual wrap fees for each account in the composite. Beginning January 1, 2014 returns reflect the deduction of transaction costs for some accounts in the composite. The standard fee schedule currently in effect is: 1% to 3% on all assets. Fees may be negotiated in lieu of the standard fee schedule. Actual fees may vary depending on, among other things, the applicable fee schedule and portfolio size. The firm's fees are available upon request and also may be found in Part II of its Form ADV.

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 herein 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.