Tucked away in the all-American city of Santa Fe, N.M., Thornburg Investment Management is building a reputation for itself as an international stock picker thanks to their thoughtful—and unusual—views on asset allocation and fundamental risk exposures.
This year, Thornburg’s portfolio managers have won a 2012 Lipper Fund Award for their International Value Fund, leading the 113-fund international large-cap growth category, while their International Growth Fund has won honors as a Lipper Leader. For the month ended Sept. 30, the value fund has seen three-year average annualized total returns of 3.9% and the growth fund has seen returns of 15.35%.
Thornburg initially gained its reputation as a municipal bond investment manager, and the firm still offers six muni funds among its total of nine bond funds. But its seven equity funds demonstrate the firm’s increasingly broad global reach.
“Consider the following: the U.S. accounts for 22% of global GDP and publicly listed U.S. companies account for 46% of global market cap, yet the average American investor has 73% of their equity portfolio allocated to U.S. equities,” writes Thornburg associate portfolio manager Connor Wilson in a white paper published in September, “Eyes Wide Open: Responses to the Increased Complexity of Global Investing.”
Put another way, Wilson says, typical American investors overweight U.S. equities by a factor greater than three relative to GDP. In other words, by putting most of their eggs in an American basket, they’re missing out on a world of opportunity.
A handful of Thornburg’s international stock pickers came to New York this week to share the philosophy behind some of their uncommon stock picks. Keep reading to learn about five of Thornburg’s best global investment ideas.
(Read Global Investing and Election: 6 Key Strategies by 6 Top Analysts at AdvisorOne.)
1) Diversification Is Your Friend
For downside protection and total returns over the long run, Wilson’s “Eyes Wide Open” white paper for Thornburg Investment Management points out that globally diversified portfolios have outperformed domestic ones. Global diversification’s benefits come mainly from the higher economic growth rates outside the U.S. and divergences in valuation between markets, he says.
“While American GDP growth creeps along, emerging and middle-income economies continue to take share from the U.S. in terms of total global output,” Wilson writes.
Consider This: The Thornburg International Value Fund’s top 10 countries are the United Kingdom, Germany, Japan, China, Switzerland, France, Canada, Israel, Denmark and Brazil.
2) The Emerging-Market Consumer Is Here to Stay
At their presentation in New York this week, Thornburg’s portfolio managers kept hammering on the theme of the growing consumer base throughout the emerging markets.
“I get asked if I believe that the emerging-markets consumer is getting long in the tooth, and I answer unequivocally that it is not,” said Thornburg Developing World Fund portfolio manager Lewis Kaufman, adding that he especially likes EM companies that sell to local consumers.
Consider This: As of May 31, the Developing World Fund’s top holding, at 3.6%, is Cia. Hering, a Brazil-based clothing company that produces basic clothing products, including jeans, blouses and shirts. The fund’s second-largest holding, at 3.4%, is Puregold Price Club, the second-largest modern retailer in the Philippines, with hypermarket, supermarket and discounter formats.
3) It’s Not About Location
Thornburg International Growth Fund portfolio managers Tim Cunningham and Greg Dunn say the world is now so interconnected that where a company is headquartered is less important than how it runs its business.
“It’s the business model and the opportunity, not where the company is located,” Cunningham says.
Consider This: One of Cunningham and Dunn’s recent finds, Gildan, is a T-shirt maker headquartered in Montreal, Canada, but the company has so many offices and operations sprinkled around the globe that they view it as an international firm.
4) The U.K. Is OK
A total of 23.9% of the Thornburg International Value Fund’s holdings are based in the U.K., while 17% of the International Growth Fund’s are based there.
Why would that be the case, considering that the United Kingdom’s economy has been struggling for years? Because many U.K. companies boast excellent business models featuring a large portion of sales in the international markets, says International Value Fund portfolio manager Wendy Trevisani.
Consider This: London-based Standard Chartered, which represents 2.2% of the International Value Fund’s holdings, is an international bank operating predominantly in emerging markets across Asia, the Middle East and Africa. China and India support the bank’s two largest operations.
5) Everybody Likes Pizza
Domino’s Pizza UK & IRL is the Thornburg International Growth Fund’s top holding, at 3.4%. It holds the exclusive master franchise to own and operate Domino’s Pizza franchises around the United Kingdom and Ireland.
The company also operates pizza delivery stores internationally— because everybody around the world likes pizza.
Consider This: The nice thing about a Domino’s Pizza franchise is that the business is largely a pick-up and delivery operation. For most fast-food restaurants, seated customers take up a lot of space. But when demand picks up at Domino’s, all the franchise owner has to do is add ovens and refrigerators. “We’re looking for differentiated business models and long runways to grow,” says portfolio manager Tim Cunningham.
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