Thornburg Income Builder Opportunities Trust – 2nd Quarter Update 2023

Thornburg Income Builder Opportunities Trust – 2nd Quarter Update 2023

Adam Sparkman: Good afternoon, everyone, and welcome to the Thornburg Income Builder Opportunities Trust update call. My name is Adam Sparkman, and I’m a client portfolio manager with Thornburg Investment Management. A point of housekeeping before we get started. At this time, all participants are in listen-only mode. However, you can ask questions at any time by submitting them through Webex or emailing us at questions@thornburg.com. The webcast is being recorded, and a replay will be available in a few days.

I’d like to remind you that today’s presentation may contain forward-looking statements, which are based on management’s current expectations and are subject to uncertainty and changes in circumstance. Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings.

I’d like to quickly introduce our speaker today, Christian Hoffman, Portfolio Manager on the Income Builder Opportunities Trust, as well as on several of our other fixed-income strategies that the firm has to offer. For those of you on the call today who may be less familiar with Thornburg, we are an investment manager based in Santa Fe, New Mexico, overseeing approximately $42 billion of assets across a suite of actively managed equity, fixed income, and multi-asset solutions. Whether the Thornburg Investment Opportunities Trust has been your introduction to our firm or an extension of a long partnership on behalf of everyone here, we’d like to say thank you.

Amid a backdrop of slowing global growth and recessionary uncertainty, the aim of the Income Builder Opportunities Trust remains the same: to provide investors with an attractive level of income today and into the future. Despite the challenges, by the end of this call, we hope you’ll have a sense of how constructive we are for the prospects of this fund, both in the near and long term. So with that, let me turn it over to Christian, who will kick off the presentation.

Christian Hoffmann: Thanks, Adam. Yeah, next week actually marks the 2-year anniversary of TBLD. TBLD, just as a reminder, is a diversified, income-producing portfolio. It’s a multi-asset vehicle of global stocks and bonds focused on firms’ ability and willingness to pay. So for us, really, ability to pay is shorthand for good companies, companies with strong balance sheets, consistent cash generation, durable competitive advantages in their fields. And for us, willingness to pay is shorthand for good, shareholder-friendly governance. So companies in forced capital, disciplined management teams, and really not allowing them to invest every single last dollar, but instead, sharing some of the profits and cash flow with shareholders. The intersection of those two concepts, good companies and good governance, is really the heart of what we’re doing on TBLD.

To refresh on the strategy, our objective continues to be to pay an attractive monthly distribution with a secondary goal for capital appreciation over time, and there are three big levers that we pulled to generate the distribution. That’s global dividend-paying stocks, fixed income, and then options overlay on the equity decisions. What we’ve seen that I would characterize as extreme market conditions in both directions over the past 2 years. Certainly, we started the portfolio and the growth factor was extremely in favor, and actually, you had that period of time where the conversation in equity markets was between growth and value, and you saw really close pivoting from one to the other, but broadly, both have had quite a strong run.

Really, growth fell out of favor, and value became very much en vogue, and then again, it seems like some of the high-flying names from 2018 to 2021 might be dead capital for a long period of time. You know, then, low and behold, I think what surprised a lot of people this year is to see many of those growth names come running back and actually be some of the top performers for the year. Many of those, the MATIC investments around AI, or surrounding IAI. But still, they dominate market returns and the conversation in a way that surprised most market participants. The way that we can use those levers, and our desire to use those levers, has also changed significantly over the past 2 years. When we started the portfolio, fixed income was very hard to generate, especially high yield in fixed income. To illustrate that, high yield as a market, I yield, yield to worst went from below 4 percent when we started the fund to over 9 percent at certain points during this year. Two-year treasuries also were sensibly zero and have gone to 5 percent. So we’ve had a massive resetting of prices and yields in fixed income, really in a historic way. That’s made fixed income provide more income. The counter way to that or the balance is, if you remember 2021 particularly, option premiums were very high. That’s when you had a lot of market participants in the options market and lots of volatility. So the volatility for options was quite high. So we’re actually getting less premium than we were on the options side. But again, having these various levers to pull and different generators of income, they don’t all have to be working the same way at different periods of time, and at different periods of time, we’re going to lean on some of those heavier than others. But also, to other traditional income funds, this has allowed us to reduce volatility and construct a more diversified portfolio. So again, it’s not a one-factor portfolio. We have exposure to growth names, we have exposure to value names, we have exposure to names from around the world focused on providing income, and we also have a diversified fixed income exposure. And as I mentioned, those fixed investments are able to contribute in more of a way than they were when we started. If you look at the dividend, we’ve maintained the same monthly dividends since we started the portfolio, and at today’s prices, that reflects an effective yield of over 8 percent, which is paid on a monthly basis, just a reminder. We want to thank everyone on the call for your continued interest and ongoing support of the fund. I see Slide 3 is up in front of us. That is really a summary of key economic issues. I’m not going to touch on all of them, but just a few comments. You know, one, is that the real economy is still adjusting to higher rates. We talked about the 2-year going from zero to 5 percent. That’s been driven by the front-end of the curve and the reserve policy. It’s just really been unprecedented and something we haven’t seen since the early ’80s. I would say that the real economy is still very much adjusting to higher rates, and the poison is still filtering through the system. It’s hard to decipher the rates’ impact from the Russia and Ukraine War, supply chain issues, and pandemic normalizations, especially for some sectors like European chemicals, and every earning season, we do the stance where we cautiously await what’s coming down the pipe, and generally, they’ve been mixed, but certainly out of disaster, it seems like this earning season has maybe come with the least amount of trepidation, which means maybe a little surprise to the downside, even though the first couple of days have been reasonably encouraging. I point to things like you saw with Ford, their announcement around the F150 Lightening. So they cut pricing on the base model from basically $60,000 to $50,000, and that was on the back of a lot of favorable things and things that had given the market concern. Supply chain issues, production issues, efficiency, labor shortages, all those things are helping the price come down. But probably the dirty secret with inflation and things that people aren’t talking enough about is the fact that inflation has actually been bolstering corporate earnings. It has helped earnings’ growth, and that’s helped to maintain BoD equity level evaluations. Not just in the U.S., but really throughout the world. Relative to the tightening cycle, I think we’re near the end in the U.S. There’s still more wood to chop in certain markets, particularly Europe. We’ve also seen EM, which has a lot more history and experience with inflation in previous decades, and some, in some cases cutting or stabilizing. So you have really different periods of time in the cycle for different central banks around the world, but broadly, everyone has been dealing with inflation, not in exactly the same way, but it’s been problematic throughout the globe. Relative to central bank policy, I think folks that watch the dollar, you had this unprecedented strength in the dollar that’s probably peaked outside of a shock, which, again, is a non-zero probability, but something worth pointing out. China is dealing with its own issues, which honestly, probably helps on the inflationary front. It won’t help with get demand and global GEP, and then the thing one thing we’re watching very closely is the less consumer. They are likely burning through the excess savings that they built up over 2000 and 2021, and that’s really playing out now through the end of the year. Everything we’re watching is when student loan repayments start to kick up, and how that really impacts not just sentiment, but also cash flow.

We can jump to Slide 4. You know, thinking about, not too long ago, we just hit the equity market at June 30th, and again, on a daily basis, I’m staring at interest rate and spread levels, and thinking about fixed income, which has become really more relevant to not just fixed income markets, but equity markets as interest rate policy has been so much a driver of concern and valuation, and has become really at the forefront of the conversation. You could really make two slides to describe the first half of 2023. One slide would show when we started in the year in terms of spread levels and correlates, in two bookends. Again, January 1st and June 30th, and you wouldn’t see much change there, and you’d kind of say, that looks kind of like a boring year in fixed income, but you could make another slide with, you can sum the information that you see on Slide 4, especially with the fed funds rate going from zero for a very, very long, very long period of time to over 5 percent, and kind of saying, wow, that, I wonder how that’s reverberated through the economy and impacted investors, and you’ve had a regional banking crisis and huge bank failures. That sounds like one of the most interesting years in fixed income ever. And I’d say both of those explanations have some truth in reality. We’re probably closer to the boring environment than the exciting environment, but certainly interest rate volatility has remained very high, and this year has not been without excitement. Let’s jump to the next slide. I’m not going to talk about all of these, but just piggybacking on what I was talking about, last year was a horrible year, really for all assets outside of cash, and I don’t know if you had an oil derrick in your backyard, you’re probably pretty happy about that, but really, everything else posted some level of negative terms and often quite negative returns for 2022. Also when you have a terrible year in any market or asset class, you know, a year for superlatives is generally followed by a big, at least some kind of bounce, often a very big bounce. If you think about, you know, 1994 and the bond market, the 1995 was a huge rally, you know, 2008 was a terrible year, 2009 was a great year, and given that a lot of the weakness was driven by inflation and fixed income, it really seemed like 2023 would be the year of fixed income and, and probably people were pretty conservative about equities and equity trends. So the surprise for the year, at least the year to date has been really the strong performance in global equities, particularly in the U.S. growth and the fact that the bond market actually didn’t have a big bounce. Bond markets have been just fine, but it’s been more of a bond year. It hasn’t been one of these years where you had, you know, a massive total return. A lot can change in the back half. I think, again, I think the set up for fixed income remains very bullish. But again, the market often does, will surprise us, you know, the most amount of folks. Another thing driving some of these equity returns, I should, I should point out is there has been some earnings’ growth, um, but there’s also been multiple expansion, which is also interesting and, and interesting in the face of, again, very high interest rates. Also, that broadly, you know, on a hitch basis is, you know, almost doubled from the lows, which is, you know, really, really significant. Another thing is the dispersion, you know, the top ten S&P 500 contributors delivered 73 percent, you know, of the year-to-date total return. So this hasn’t been, you know, a market or, you know, absolutely everyone is winning. It’s really been held up by, you know, a few key players. A lot of those have been centered around just a few narratives, particularly AI, which I’m sure everyone has heard a tremendous amount about. A secondary narrative would be, you know, obesity drugs and, uh, you know, the companies that have exposure to that. Let’s jump to Slide 6. So equity component, you know, broadly 70 to 75 percent in general, credit 25 to 30, 30 percent. Again, we believe that we valise and, and bounce in the portfolio. You know, where they cross geography as asset classes and, and sectors. You know, all these things come together to, to provide income. Um, and the option overlay, we can just reinforce something I pointed out earlier. You know, the options have become less generative of the, of the income, you know in go, you know, year-to-date 2023, um, but the fixed income allocation is, you know, is doing heavier lifting given, given how much yields have changed there. And that’s, to us, what makes the strategy, you know, really terrible over time. Let’s jump to seven. So again, a quick overview of our current allocation. This remains a concentrated portfolio. Fifty-seven equity holdings, 121 bonds, and really, again, touching on the diversification across sectors. Some of those sectors have higher yields, some have lower. Those tend to be the growth year companies. Often those growth year companies have, you know, expensive options that we can sell and create, create income, again, diversifying the base, really giving this portfolio, again, that all-weather character. On the bottom right also highlight asset allocation broken out a different way. Non-U.S. being really the largest portion of the portfolio at almost 43 percent. You know, as we said many times stocks outside the U.S. didn’t have higher dividend yields than stocks inside the U.S. For historic and tax and many other reasons, and S&P 500, I believe still remains the, the lowest yielding major equity index in the world. Let’s jump to Slide 8. Another snapshot of, of sector diversification. Again, we’re not trying to win by making any specific country or sector bet. We have a lot of exposure to IT, you know, it’s a combination of software, semi-conductors’ payments. Some of those are more cyclical than others, and some are more resilient and again, some of those have been reborn as tied to this, you know, wave in AI, which again, has been helpful to portfolio performance year to date. Materials at 8 percent isn’t huge, but, you know, that’s something that should participate, you know, in an inflationary environment, you know, as that continues, and, uh, from there I’ll turn it over to Adam for some comments.

Adam: All right, well thanks, Christian. We’ll flip to Slide 9. So here you see a snapshot of our top ten equity holdings. As Christian mentioned, this is a pretty high conviction portfolio. On the equity book, these ten holdings represent about a third of our equity allocation and a little bit more than 20 percent of total portfolio exposure. So we’re definitely deliberate in our allocation to our highest conviction best ideas. The other thing you might be able to tell just looking at the names here, I think this is a really diversified group, both from a geographic and industry perspective. Our top name, NL, is an Italian utility. NN is a Netherlands-based insurance group. You’ll see, like, a Pfizer who’s U.S. Pharmaceuticals, Mercedes Benz, a German auto maker, and we’ve also got an Australian miner up there. Enterprise Software, a semiconductor manufacturer. So really diversified but high conviction. A lot of these names are providing really attractive dividends for the portfolio, but because of our ability to generate income also through that options piece, and being able to write covered calls, we’re able to balance our exposure so we don’t have to just be really value-oriented in our style allocation, but we can own something like Meta, which you see in our top ten, and obviously more growth-oriented. That’s been one of the top ten contributors year to date. So flipping to Slide 10. Here you’ll see the performance of the portfolio, as well as that of our benchmark, which is a blend of the MSCI world and the Bloomberg Barclays U.S. Ag. Over the first half of the year, markets have continued their rebound, which really began last October. During the quarter, the fund was down a little bit less than 1 percent, versus a 3 percent positive return for a blended index. Noting that most of that underperformance was driven by the discount. Generally, I think it’s constructive to consider the funds’ performance both in terms of current market price, as well as the actual NAV return. On a price basis, the portfolio is down roughly 7.2 percent, annualized since inception with the entirety of that negative return driven by close to a 14 percent discount to the current NAV. On a NAV basis, you’ll see here trailing 1-year performance of the fund. This has actually been about 200 basis points ahead of our blended index and since inception, again, performance has been nearly 200 basis points ahead of our blended index as well, and that’s on an annualized basis. Importantly, I think the current price to NAV dislocation that we’re seeing in the markets is not specific to the R Fund, but broadly reflects the closed-end fund really continuing to be in one of its most oversold periods in recent memory. Turning now to Slide 11. Really here it’s a similar message to the previous slide. It was obviously a persistently challenging environment over those first 9 months of 2022, but both equity and bond markets have bounced back, especially equity, over the past 9 months, and the rally has been driven by renewed hopes that the global inflationary pressures that we saw coming out of COVID look to be peaking. Obviously, different rates across regions, but I think that there’s a lot of hope that that slower pace of additional rate hikes will continue to be a valve for equity markets. As I mentioned in previous calls on this chart the month that really sticks out is that September 2022. That was really when we saw a big dislocation of the price in the NAV, about 6 percent of that negative return that month was due to a widening of the discount. So that month represents about half of the discount to NAV that we see today. We have had some additional widening along with the closed-in market more broadly over the last 2 months. Over May and June, the NAV performance was roughly 380 basis points better for the fund than it was based on those price returns. Flipping to Slide 12. You can see the price to NAV premium and discount history here. Price to NAV traded in line through much of 2021. But liquidity in the market place really became challenged in 2022, we saw the fund trade away from its intrinsic value. It reminds us of some other periods in closed-end history, the end of 2018, as well as in early 2020, we saw pretty broad dislocations in the closed-end market with some similarities of what we’ve seen over the past year plus now. But eventually it’s intermittent proved and those gaps closed pretty quickly. So while this has been a prolonged period of dislocation for closed-ends, we do think at some point we will see a similar recovery, and we believe the funds’ current discount provides a really attractive entry point for would-be buyers in this environment. I think it goes without saying we clearly want to see this bond trade near to NAV than it is today. We’re disappointed to see the discount widen out a bit during the quarter, but we hope by earning and paying a substantial distribution, as well as engagement and client communications like this, that we can help guide current and perspective shareholders through this volatile period. Moving to Slide 13. The one thing that we can control is our distribution. We’ve paid another distribution of a little more than 10 cents today actually. Since inception, you’ll see that T Build has now paid a total of 23 distributions of that same 10.4 cents, totaling nearly $2.40 per share. When we declared the initial distribution on August 25th, 2021, it represented an annual distribution rate of about 6.25 percent on that IPO price. For an investor in buying the fund today, that same 10.4 cents per month represents a yield on cost of 8.1 percent. Again, we think that’s a pretty attractive proposition for would-be buyers. Turning to Slide 14. So this table really highlights the importance of dividend income over time. Looking back over the past 150 years and segmenting returns of the S&P into 10-year periods, you can see that over time dividends have accounted for roughly half of your total return. But it varies quite a bit by decade and year over year, even within a lot of these decades. In periods where price appreciation is very high dividends obviously account for a lower portion of your total return, but as you can see in a period like 2001 to 2010, dividends actually accounted for more than 100 percent of your total return, because for the whole decade, price appreciation was actually negative. We saw that trend reverse over the past decade, 2011 to 2020. You know, price appreciation really won the day and dividends accounted for only 16 percent. So really depending on your outlook for the next decade, if price returns are not as strong as they were through the 2010s, we think that dividends can be expected to count for a higher percentage of your total return. And obviously, this has been a year where growth has really led, but with a normalized cost to capital, I think we’re constructive that dividends, over the longer term, will be a more important piece of returns than they have in the recent past. So with that, why don’t we close the presentation and switch over to question and answer mode. All right, I know you mentioned the options writing and one of the questions that we’ve had come through, I like the options writing book. You know, it’s decreased in exposure. I think it’s less than half of the exposure it was around this time last year. I think you mentioned some of the reasons why it’s not as an attractive lever right now, but do you expect, over the next 6 to 12 months, to materially increase or decrease the current exposure to options?

Christian: Yeah, we’re having to have it higher. I think forecasting volatility is probably even harder than, you know, forecasting interest rates or equity earnings trends. The good thing is we’re not relying on it to succeed. So we’re doing really just fine, you know, as we are. But, you know, if and when volatility picks up, that could be significantly higher. Also, just to remind everyone that this is very much fundamental analysis-driven. So it’s driven by price targets and really picking levels where we want to buy or sell a security, and creating the options around that, provided the options are providing enough income relative to giving away that upside or downside potential. So again, I think the fact that you see that move up and down speaks to the fundamental process and the idea that we’re actually making decisions around that and it’s not just problematic and spitting out things. It’s trades that we believe in and believe that make sense for the portfolio.

Adam: All right, and that’s a good color. Next question deals with the distribution. The question is, are you generating cash flow sufficient to cover that monthly distribution of 10.4 cents and what does that look like forecasted out from here?

Christian: Yeah, we have been so far and I, again, this is one thing that’s characterized at the end of the year. So it’s always, you know, there’s always a lot of caution and, you know, year to date what that’s gonna look like for the year. So I’m gonna refrain from doing that, but I would point folks to the tax efficiency and the QDI, and the fact that historically, we have two fiscal year ends, you know, how were these done, and I think we did exactly what we told folks we were gonna do, actually even slightly better. So, you know, happy with that. I believe that we are on the right trajectory, but again, I really have to wait for the end to see, you know, how much is characterized as QDI and other things, and again, sometimes those things you can’t control, which can create bumps in the road, but I don’t anticipate that.

Adam: Okay. So you mentioned the difficulty of forecasting interest rates, but we’ll put you on the spot here anyway. Do you think that the Fed has hit its terminal rate for the cycle? Or are you still expecting and positioning the portfolio for some additional tightening throughout the rest of the year?

Christian: So I think it’s very likely that we’ve put in the tops for longer-term rates, which the Fed doesn’t control. I don’t believe we’ve put in the top for short-term rates. I very much believe the Fed will hike 25 basis points this month and then stop, and if you want to unpack that a little bit, that hike doesn’t make a ton of sense intellectually, because they paused last month and said they wanted to see more data come in. The data has come in, I think much better than anyone anticipated, including them, particularly on the inflationary front and particularly all the readings we got last week from kicking off the week with Anaheim used car prices showing this inflation better to really constructive CPI print. So there’s gonna be some intellectual dishonesty ’cause it does very much seem like they had planned a hike and they’re gonna stick to it. But if you’re gonna wait for the sake of doing it, you could have done it last month, and if you’re at a dependent, then you wouldn’t hike this month. I think it speaks to something the Fed doesn’t talk about that seems very keen to pursue, which is their really distaste for surprising the market and their desire to really lay out a task path so that investors aren’t taken by surprise.

Adam: Okay. You mentioned obviously the positive news that we’ve really gotten over the past month with inflation, some of those other prints. When you zoom out and think about the first half of 2023, have you been surprised by the resilience of the global economy during the first half of 2023, and do you think that we can continue to see that momentum come through during the second half of 2023?

Christian: So it’s no secret that monetary policy has some wag that’s very hard to quantify and measure until it’s very much in the rear-view mirror and you see what happened. I’m happy that things have held up pretty well so far, but we’re looking at high-frequency data, we’re looking at monthly remits, and watching this all very closely. You are seeing weaker consumers, consumers that don’t have as much balance or resilience, go from above normal economic activity to normalize, and you know, you’re starting to go through that and actually seeing the deterioration and weaker performance relative to an average or normal level. And we talked about inflation perhaps being the dirty secret of the earnings calendar for the past several quarters, and maybe seeing the flip side of that with deflation and how that might filter through into forward earnings and valuations. China’s softness is something people have been scared of for a really long time. That doesn’t seem to be particularly part of the conversation, and as we talked about earlier, consumers burning through excess savings and how that will impact GDP but also sentiment broadly in decisions. So I think the path from here becomes much harder. Every economic data point that we get, the market is ready to print the story and they say, “Okay, we figured it out. It’s hard landing, it’s soft landing, it’s no landing,” and really wild moves, swings from incredibly bullish to incredibly bearish. But I think if you get away from that noise, you’ll see that things are worsening, and I think you need to maintain some dry powder and keep some caution.

Adam: Okay. We hit a question on the allocation of options. We have another kind of high-level portfolio allocation question regarding fixed income. The caller notes that the fixed income allocation has been pretty steady, at least over the last year. You mentioned the rise in rates we’ve obviously seen with high yield, the yields going from 4 to 9 percent. So with some of those dynamics, do you expect the portfolio to add more fixed income exposure into the future? And if so, are there any particular areas within fixed income that you’re favoring today?

Christian: So to touch on the question, it touches on the idea that the allocation has been recently stable, but it has evolved since Day 1. We very much believe there should be a diversified portfolio and really have equity and fixed income exposure across the cycle. If you peer down and dig a bit deeper, you’ll see actually more changes going on with the fixed income. It started with a credit-centric focus and actually a large overweight to floating rate instruments. That really helped the portfolio perform in a very challenging period in fixed income. As we went from zero to 5 to 10 percent, depending on if you look at treasuries or some kind of spread product, we’ve migrated out of those floating rate positions and into more yieldy positions. We also were very cautious on taking a duration risk in the early days. And as you’ve gotten paid more to take duration risks, we have been adding that and probably have the ability to do so further. So broadly, we went from short duration, high credit exposure to longer duration and lower credit exposures. We’ve been able to significantly increase the quality of the fixed income positions. If we’re able to buy high-quality fixed income, say, 8 plus percent, which I very much expect in the life of this fund and certainly we’ve done some of those trades so far, but it’s not like a 2020 or 2008 environment where you could get those all day long. We’re getting limited shots at stuff like that, but if you’re able to, yeah, lock in some of that stuff within an investment-grade-like risk for a long period of time, you know, that would be an easy way to lock in some of the distribution, and I think we’d be pretty keen to do that, but it’s not unlimited doses on the menu today.

Adam: Okay. A question here notes that the reality we’ve seen this year in equities has really favored growth style over value and more income-oriented stocks year to date. I know this portfolio is balanced on the equity side, and we do have exposure to some of that growth factor that’s worked. But do you think that the style preference for growth continues to have legs into the back half of the year? Or do you think there’s a possibility that maybe we get a reversal with value and income and some of the areas where this portfolio is really focused on coming more into favor?

Christian: Yeah, I think it’s not just a possibility, but you’re already seeing that play out. Especially if you study the daily moves and look into the components. We talked about seven to ten names really doing the heavy lifting for a lot of U.S. entities this year. But you’re seeing that play out, and I think a lot of market participants think some of the AI craze is probably overdone and are rebalancing. So I think not only is that my projection, but it’s already happening.

Adam: Okay. Well, I’ll ask one last one here, kind of zooming out on the macro. Into the second half of the year, what do you think poses the most significant macro risks for markets, whether interest rates, an economic downturn, geopolitical event? Is there anything in particular keeping you up at night?

Christian: You know, it tends to be something that the market wasn’t paying attention to. The thing that really tends to de-rate any asset class or security is something that wasn’t properly factored in. I think geo-political tensions are something worth paying attention to, and they’re always worth paying attention to, but they seem to be getting worse and not getting better. How central bank policy continues to overrate through the economy is important, and I think another thing people aren’t talking enough about is can we have these debates on hard landing, soft landing, no landing. We’re not probably focusing enough on winners and losers. So already the winners and losers of these unprecedented hikes are playing out, right? There’s a huge difference between two companies, two high-yield companies. Say you have Company A, has funded all their debt with long-term high yield bonds, and their cost of debt is 4 percent. You contrast that to high-yield Company B, which has their balance sheets structured in the levered loan market, called it, so for plus 400 type paper, their cost of debt has doubled. So one has actually become a huge winner, given the resetting rates and if they want to, they can buy back their bonds at 80 cents and create 20 percent upside in a snap of their fingers, while the other one is stuck with this very high cost of debt. A lot of high-yield companies structure very aggressively where they’re structuring, call it 0 to 10 percent, free cash flow to debt, on Day 1, and if your cost of debt doubles, all of a sudden you’re burning cash. That’s why you’re seeing deterioration in the levered loan space. That’s why you’re seeing default rates that are probably a lot uglier than people anticipated in the levered loan space. Also, consumers that are sitting on a 2 1/2 percent mortgage are actually pretty excited about that liability which has become an asset for them. But you contrast that to a consumer that doesn’t really have any assets and is forced to borrow to buy a car, buy a house, really do anything, and their cost of capital has doubled at a time when the economy is softening. So I think in any of those broad macro pictures, the winners and losers are becoming apparent, and probably the topic for debate and the next question then becomes, how much do the losers reverberate through the market? How much does that impact demand? How much does it impact sentiment? And could that become more broad-based? And I think the answer is probably something we’re watching very closely in the second half of the year.

Adam: All right. Well, Christian, thanks so much for joining us today and all the color on the fund, as well as the market more broadly. Everybody, thanks so much for joining us, and we appreciate you making it as interactive as you did with the Q&A. With that, we’ll talk to you later. Thank you.

Important Information:

The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management, Inc. Thisinformation should not be relied upon as a recommendation or investment advice and is not intended to predict the performanceofany investment or market.

This is not a solicitation or offer for any product or service. Nor is it a complete analysis of every material fact concerning any market, industry, or investment. Data has been obtained from sources considered reliable, but Thornburg makes no representationsas to the completeness or accuracy of such information and has no obligation to provide updates or changes. Thornburg does not accept any responsibility and cannot be held liable for any person’s use of or reliance on the information and opinions contained herein.

Investments carry risks, including possible loss of principal. Additional 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-and mid-capitalization companies may increase the risk of greater price fluctuations. Portfolios investingin bonds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds. The value of bondswill fluctuate relative to changes in interest rates, decreasing when interest rates rise. This effect is more pronounced for longer-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. Investments in mortgage-backed securities (MBS) may bear additional risk. Investments in lower rated and unrated bonds may be more sensitive to default, downgrades, and market volatility; these investments may also be less liquid than higher rated bonds. Investments in derivatives are subject to the risks associated with the securities or other assets underlying the pool of securities, including illiquidity and difficulty in valuation. Investments in the Funds are not FDIC insured, nor are they bank deposits or guaranteed by a bank or any other entity.

The performance data quoted represents past performance; it does not guarantee future results. Returns will fluctuate and current performance may be either lower or higher than data shown.

The S&P 500 Total Return Index is an unmanaged broad measure of the U.S. stock market.

The MSCI EAFE (Europe, Australasia, Far East) Net Total Return USD 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 developedmarkets on a U.S. dollar adjusted basis. The index is calculated with net dividends reinvested in U.S. dollars.

The MSCI ACWI ex USA (Gross/Net) Index is a market capitalization weighted index representative of the market structure of 46developed and emerging market countries in North and South America, Europe, Africa, the Middle East, and the Pacific Rim, excluding securities of United States issuers. Beginning in January 2001, the index is calculated with net dividends reinvested in U.S. dollars. Prior data is calculated with gross dividends.

The MSCI Emerging Markets Net Total Return USD Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 24 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

The MSCI AC (All Country) Asia Pacific Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed and emerging markets in the Asia Pacific region. The index consists of the following 14 developed and emerging market countries: Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, Philippines, Singapore, Taiwan and Thailand.

The EURO STOXX 50 Index provides a Blue-chip representation of supersector leaders in the Eurozone. The index covers 50 stocks from 11 countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

The Bloomberg U.S. Universal Index measures the performance of U.S. dollar-denominated taxable bonds that are rated either investment-grade or high yield. The index includes U.S. Treasury bonds, investment-grade and high yield U.S. corporate bonds, mortgage-backed securities, and Eurodollar bonds.

The Russell 3000 Growth Total Return Index is an unmanaged index comprised of those Russell 3000 companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 Growth or the Russell 2000 Growth indices. Source: Frank Russell Company.

The Russell 2500 Growth Total Return Index is designed to measure the performance of those Russell 2500 companies with higher price-to-book ratios and higher forecasted growth values.

The Russell 2500 Total Return Index measures the performance of the 2,500 smallest companies in the Russell 3000 Index, with a weighted average market capitalization of approximately $4.3 billion, median capitalization of $1.2 billion and market capitalization of the largest company of $18.7 billion.

The potential long-term impacts of the pandemic remain uncertain and difficult to assess, and there is no assurance that a particular business strategy or product will limit potential investment losses.

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Thornburg Securities Corp., member FINRA, is an affiliate of Thornburg Investment Management.