Growth Investing with Both Feet on the Ground
“We search for good
businesses with promising
growth prospects that trade
at reasonable valuations.
Good businesses typically
have durable competitive
advantages that lead to
strong market share and
high margins. We look for
secular tailwinds and a large
addressable market — to
provide a long runway for
growth. We also consider
valuation a key component of
investing and are only willing
to pay a reasonable price for
growth. Our goal is to build
a diversified, all-weather
portfolio that will perform
well in both up and down
markets.”
— Greg Dunn
Overall Approach
Managed in a bottom-up, fundamentally driven, hard-research intensive fashion.
The strategy’s flexible mandate gives us wide latitude to invest in different types of growth companies, up and down the capitalization spectrum.
A flexible mandate means little if managers choose the wrong stocks. As with other Thornburg products, our research is bottom-up, fundamentally driven, stock-by-stock.
While value managers often start from a place of valuation and decide whether a company is a good business, we tend to start from a place of growth and ask:
- Is there a long-term growth opportunity?
- Is it a good business?
- Is the valuation reasonable?
The Opportunity Set
We look for:
Attractive growth characteristics: A large
addressable market, secular tailwinds, durable
competitive advantages, and a high rate of growth
with operational leverage.
Good businesses: High barriers to entry, quality management, durable competitive advantages, strong market share, high and sustainable margins.
Reasonable valuation: We consider growth prospects, business models, historical valuation ranges, conduct peer valuation comparisons, and look at investor sentiment.
Investment Process & Portfolio Construction
All Cap Growth uses Thornburg’s basket construct; we attempt to keep the exposure to each basket roughly equal to provide optimal diversification balance.
Consistent growth companies exhibit steady earnings and revenue growth; these companies often have subscription or other recurring revenue profiles.
Growth industry leaders often have leadership positions in growing markets, sometimes with dominant market share, and tend to be larger and more established.
Emerging growth companies are typically growing rapidly, often carving out a niche in an existing market. They tend to be smaller, earlier-stage companies. We expect these companies to generate high returns over time, but with higher volatility.
Risk Management
From initial fundamental research, through the continuous monitoring of our investment thesis, to ongoing evaluation of business developments, we know what we own and why we own it.
We diversify through Thornburg’s basket construct, industry and sector representation, position size, market cap, and through monitoring stock-specific risks.
A core component of our risk management process is maintaining a consistently executed sell discipline. We tend to be fast to sell a holding when a crack appears in the investment thesis.
Distinguishing Characteristics
Flexibility: The strategy operates under a flexible mandate, allowing us to pursue many different types of growth stocks in many different areas.
Focus: At well under 100 holdings, Thornburg All Cap Growth is more focused than many domestic-growth peers.