From the February 2008 issue of Investment Advisor • Subscribe!

February 1, 2008

Catching up with...

Brian McMahon

Brian McMahon, longtime president and chief investment officer at Thornburg Investment Management (TIM), added the CEO mantle to his responsibilities on January 1, succeeding Garrett Thornburg, who founded TIM in 1982 and who will continue as chairman. McMahan joined TIM in 1984, and has been president since 1997. He co-manages Thornburg Global Opportunities Fund and Thornburg Investment Income Builder Fund.

McMahan asserts that his daily life won't be very different now that he is CEO but he did have lots to say about the challenges that lie ahead for professional investors, adding that for investors who remember 2002 as "a very, very interesting time," and the expression "buy low and sell high," these can be intriguing, albeit challenging, times, indeed. Senior Editor Kate McBride caught up by telephone with McMahon in his Santa Fe office in early January.

You're taking the helm at a very dynamic time in the markets. What's the biggest challenge as far as that goes? It's always performance-delivering good investment performance for our clients. That doesn't change. It's always been that way and it probably always will be that way.

Have the credit crunch and housing crisis affected what you do day-to-day for the portfolio? I think it's different for different portfolios, so we could look at the bond funds and at the stock funds. Certainly, in the stock funds, the fact that a lot of financials are taking losses or recognizing losses and writing off equity, diminishing earnings, and in some cases issuing very dilutive, new equity--that's quite harmful to current equity holders. We're trying not to be in the way of too much of that.

Does that mean that you've lightened up on those parts of the portfolio? Relative to earlier years, yes, we have. If you look at a fund like Thornburg Investment Income Builder, which is an equity-income fund, a dividend-tilt, yield-tilt fund, one would expect us to have very significant holdings of U.S. banks given what the payout is in the sector, but we didn't through much of 2007, and don't currently because we have been trying to kind of stay out of the way of this freight train.

Yes, it does affect us, and then there's a secondary effect: What is the spillover into the real economy? That, of course, has yet to be written but I think we're seeing some early indications that it's going to hurt a lot of retail stocks and consumer discretionary stocks, and there just isn't going to be as much financing for all kinds of businesses as there once was.

I think it makes it a challenge, but among these challenges come opportunities. It's also a challenge when nobody sees any problem and asset prices get to be very, very high. In fact, just roll back the clock two years; it's exactly where we sat in the debt market. Credit spreads were negligible and credit risk, we now know, was a lot bigger than what people were providing for. Now I think we're at a juncture in the market where it's very, very interesting to be a professional investor.

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