Thornburg 2017 Outlook: Stretched Valuations, Faster Growth and Noisy Politics Ahead.
Thornburg Chief Investment Officer Brian McMahon and Senior Advisor Bill Fries on secular stagnation, "reflation," rising populism, valuations and volatility, a changing China and the U.S. economic outlook amid the Republicans' "burden of delivery."
JANUARY 2017
thornburg.com
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Stretched Valuations, Faster Growth
and Noisy Politics Ahead
After a volatile 2016, investors should gird for more volatility in 2017. The “reflation” trade
in the wake of Trump’s election has stretched U.S. equity market valuations even further
and pumped up high-yield bonds. Will economic and earnings growth come through?
Caveat emptor
. In Europe, populism may prevail, but electoral surprises don’t stop people
from going to work. The same holds true in China, where money can be made
notwithstanding fears of a debt avalanche. Identify relative values, and make money over
time, not by trying to time the market.
A Conversation with CIO Brian McMahon and Senior Advisor Bill Fries,
cfa
Brian McMahon is responsible for Thornburg Investment Management’s overall invest
-
ment activity. He also co-manages Thornburg’s global equity portfolios. He managed
Thornburg’s laddered bond portfolios from their inceptions until 2000 and remains
actively involved in securities analysis for various Thornburg managed portfolios. Brian
holds an MBA from Tuck School of Business at Dartmouth College and a BA in econom
-
ics and Russian studies from the University of Virginia. Brian joined Norwest Bank in
1979, and held various corporate finance positions before joining Thornburg Investment
Management as chief investment officer in 1984.
Bill Fries is senior advisor of Thornburg Investment Management. He joined the firm in
1995 as the founding portfolio manager for Thornburg’s first equity strategy, and until
2016, he co-managed Thornburg’s international equity strategy. Bill maintains his role as
investment analyst, providing his knowledge, insight, and experience as he mentors and
collaborates with the investment talent at Thornburg. Bill began his career as a securities
analyst and bank investment officer. His more than 40 years of investment management
experience includes an extended tenure as vice president of equities at USAA Invest
-
ment Management Company. He is a CFA charterholder.
2 | Year-Ahead Outlook 2017
Q: Secular stagnation:
A year ago, the
outlook was for secular stagnation, anemic
economic growth and continued deflation
-
ary pressures globally. The market seemed
positioned for this scenario until mid-
2016, when dispersion and volatility
began to increase markedly. The U.S.
Federal Reserve just hiked its benchmark
interest rate for the second time in nearly a
decade. China’s producer prices recently
turned positive for the first time since early
2012. Although China’s economy is
slowing moderately and Europe’s is still
not growing much, does the notion of
secular stagnation still hold?
Bill Fries:
Uncertainty in Europe
triggered by the surprise outcome of the
U.K.’s Brexit vote dampened an already
soft economy. However, the recent
strength of the dollar, reflecting the U.S.’s
economic health, rising interest rates and
the November election results, may well
work to ultimately boost economic
activity in major exporting countries.
This, along with renewed U.S. consumer
confidence, could be enough to generate
sustained or even accelerated global
growth. Major exporting nations like
Japan, China, and Germany are particu
-
lar beneficiaries, with some flow back to
emerging markets and positive impacts
on commodity prices and inflation.
Employment growth should follow and
benefit world GDP.
Brian McMahon:
I think prior expecta
-
tions for more weak years in 2016 and
2017 began to get reset higher. There was
too much pessimism about the global
economy, commodities prices, and
industrial production. But as first quarter
and second quarter 2016 earnings came
out, they were supportive of equities, and
a challenge to those central bankers who
said we need to print money and keep
rates lower for longer. And then we also
saw some uptick in inflation and wages,
even in Europe.
I met with management teams of 50
companies in Europe last June. I came
home the day of the Brexit vote, on June
23. There was a lot of anxiety about the
result and stocks traded off. But after
talking to so many companies in
different industries, it felt like the
market reaction was wrong, and that the
volatility was misplaced. We hung in
there with our portfolios and didn’t
panic. I had spoken with 20 companies
that we owned, and another 10 to 15 of
their competitors. I believed then that
based on our fundamental research,
things were okay in Europe. And the
management teams were also saying
their businesses were okay.
Now the most important question is if
the current mild optimism is misplaced.
It’s probably not. There should be more
growth following through, but maybe not
as much as the optimists hope.
Q: Populism:
Brexit, Trump’s election,
and the resignation of Italy’s prime
minister after a failed referendum on
amending the country’s constitution were
all significant political events, to which
markets reacted with sharp swings. Should
investors expect more political surprises
and market volatility in 2017, given
elections in France, Germany, and likely
Italy, not to mention divergence in central
bank monetary policy, with the Fed
tightening and European and Japanese
central banks still suppressing rates?
BM:
The short answer is yes. But, we
went through all those things in 2016,
and equity markets still delivered pretty
good performance in the U.S. Outside
the U.S. the performance was more
mixed in dollar terms. But we’ve weath
-
ered these market storms. They leave
some people too afraid to invest, and then
they miss out. At the ground level, people
still wake up and go to work and try to
make a buck. In cities everywhere, people
are still stuck in traffic, and at end of day,
I feel pretty good about having them
working for us, through our ownership of
their companies’ stocks.
Generally, I’m constructive about
investing in these people, regardless of
the Obamas, Trumps, Merkels, and
Hollandes around the world. If presidents
and prime ministers don’t do a good job,
they get thrown out sooner or later. And
if they do okay, they may stick around a
little longer. But investors will make the
most money with time, not by trying to
time the market around these kinds of
political events.
The recent strength of the dollar, reflecting the
U.S.’s economic health, rising interest rates and the
November election results, may well work to ultimately
boost economic activity in major exporting countries.
I had spoken with 20 companies that we owned, and
another 10 to 15 of their competitors. I believed then
that based on our fundamental research, things were
okay in Europe.
Stretched Valuations, Faster Growth and Noisy Politics Ahead | 3
Q: U.S. Economy:
After years of
discounting Fed interest rate and GDP
projections, the market is now largely in
alignment with the central bank’s fore
-
casts. It’s clear Trump’s election and his
cabinet picks are driving higher growth
and inflation expectations, based on
proposed individual tax cuts and corporate
tax reforms, deregulation, and fiscal
stimulus via infrastructure spending.
What’s your take on the outlook for U.S.
growth, inflation, and interest rates?
BF:
There seems little reason to doubt
rising interest rates, especially at the short
end. If the Fed’s three projected rate
increases for 2017 are actually imple
-
mented, the yield curve will flatten with
the spread between the short and long
ends contracting. Because absolute levels
are relatively low, interest rates should not
be much of a detriment to profits and
growth in the corporate sector. While
there was a modest pause in U.S. growth
early in 2016, the election of an adminis
-
tration with an ardent growth philosophy
makes a material economic contraction
near term unlikely. Impacts from easier
interpretation of regulations could be an
early stimulant. That said, tax change
expectations are so high, and they will
take time to work out. The outcome may
disappoint as the conflicts with budget
constraints get incorporated.
In any event, recent economic data are
encouraging. A good holiday shopping
season should lead to a healthy inventory
restocking cycle. The much talked about
infrastructure spending will take awhile
to get from idea to execution, but even
project planning has some positive
economic impacts. Commodity prices are
already up on potential changes in supply/
demand balances. Oil prices have doubled
from last February. Inflation will likely
pick up some as energy costs pervade
most economic activity.
BM:
Republicans now have the burden
of delivery. If they deliver, then I think
the stock market appreciation and the
modest interest rate increases will be
supported. If they don’t deliver, we’ll get
“lower for longer” rate levels, because the
economy will end up suffering. The tax
code in the U.S. is terrible. It’s an
impediment to economic efficiency and
progress. Most people in both parties
agree with that. But they don’t agree on
what to do about it. Different interest
groups want different things. We’ll see if
Trump can forge a deal.
Q: U.S. Sector Outlook:
Where do you
expect to see the biggest impacts of deregu
-
lation—banking, energy and associated
pipeline infrastructure, small business
formation? How much of an impact might
deregulation have in terms of spurring
more growth?
BF:
Since the financial crisis, bank
lending has not been notably robust. This
is sometimes attributed to capital regula
-
tion, but it may just be from weak loan
demand. Easing regulations for smaller
regional lenders as distinct from systemi
-
cally important lenders may help make
more funding available for local borrow
-
ers. While this might stimulate addi
-
tional lending for working capital, banks
are not typically in the venture capital
business, so the impact of more lenient
banking regulation may not have the
hoped for impact on business formation.
Environmental regulation with regard to
the energy business may not change all
that much under the Trump administra
-
tion; some of it is as much local as federal.
Perhaps one area impacted might be
permitting of pipelines to facilitate
moving Canadian oil sands production to
refineries in the U.S.
Health care insurance and drug pricing
will be areas of focus for the new admin
-
istration. Complexity will slow change in
the insurance and reimbursement arena,
but drug pricing will continue to garner
headlines and likely remain under
pressure, especially for high-cost mainte
-
nance prescriptions. New unique drugs
addressing an unmet need will still have
pricing power.
Q: U.S. Equities:
Since the mid-2016
record low in the 10-year U.S. Treasury
yield, ostensibly defensive, low-volatility
equities have been under pressure, which
intensified as the Trump reflation trade
lifted U.S. benchmark equity indices to
record highs. Are U.S. stock investors
getting ahead of themselves, given index
valuation multiples?
BF:
The forward earnings estimates for
the S&P 500 approximate $128 and $133
for 2017 and 2018. On the recent bluechip
index level of roughly 2260, the market
price/earning ratio (P/E) for this year and
next are approximately 17.7x and 17.0x,
respectively. This is only slightly above the
trend since 2011. A P/E of 17.7x for 2017
is the same as an earning yield of 5.6%.
Compared with investment alternatives,
it’s not all that bad. And if earnings come
through above current expectations, it will
produce a better valuation.
The fluctuation of securities prices is
always with us, responding to fundamen
-
Some things are expensive. Our job is to find things that aren’t stretched... Not
everything is super expensive.
4 | Year-Ahead Outlook 2017
tal changes and perceptions. This year
will likely have its share of volatility, but
today’s overall market price seems
reasonable, should earnings growth
develop as expected.
BM:
Some things are expensive. Our job
is to find things that aren’t stretched.
That’s what we try to do every day. For
example, we don’t think T-Mobile, in
which we have a full position in our
Global Opportunities strategy, is too
expensive. It’s the third-largest U.S.
wireless provider by subscribers, and
trades at 6.5x EV/EBITDA. We think it
could fetch 8x to 10x EV/EBITDA. So it
should have some upside.
CME Group is another one. It benefits
from the market volatility, which higher
rates generate across asset classes. It’s a
great business, matching global buyers
and sellers of futures, options, swaps, and
related financial products. Its trading
volumes last quarter were up around 30%
from the year before, and it offers a
dividend yield of 4.7%.
There are deals to be found outside the
U.S., too. Taiwan Semiconductor also
trades at 6.5x EV/EBITDA, sports a
dividend yield of just over 3%, and net
cash of more than 5% of its market cap. Its
annual sales are growing 11%, and it still
has a number of projects in the pipeline.
Not everything is super expensive. We sift
through the rubble, trying to find good
businesses that aren’t terribly expensive.
Q: U.S. Treasuries:
Turning to fixed
income, U.S. Treasuries have taken a
beating recently, inflicting total return
losses on investors in long-dated Treasur
-
ies. The 10-year U.S. Treasury yield has
been hovering well over 100 basis points
off its mid-2016 lows, recently close to
2.6%. At what point do longer-dated U.S.
Treasuries become attractive, quite apart
from their relative attractiveness against
other G-7 bonds?
BM:
I think you buy long bonds when
the yield is better than the implied yield
on wage inflation. Not everyone at
Thornburg agrees with me, but I don’t
think we’re there yet—at least by the
Atlanta Fed’s nominal wage inflation
data, which I prefer. In November, it ran
at 3.9%, well above 10-year Treasury’s
2.55% yield. If the implied wage inflation
yield is greater, skepticism that the
government is committed to restraining
inflation’s impact on its own bonds on an
after-tax basis might be justified.
Q: U.S. High Yield:
Like U.S. equities,
U.S. high yield had a banner year in 2016,
as spreads compressed sharply. How much
upside might be left,
considering the
prospect of faster
economic growth?
BM:
I’m a little leery. Spreads have come
in, which is part of its great performance.
The greatest performance came from
high-yield energy and commodities
paper, the stuff nobody wanted a year
ago. If the U.S. economy is buoyant, at
least you have a coupon. But I would
guess at some point it’s vulnerable to
some shock. I don’t know what that
might be. Maybe higher inflation without
faster economic growth driving rates up.
Or maybe the economy not doing as well
as expected, so credit risk reemerges.
Perhaps either of those things: an
inflation-driven rate spike, or the econ
-
omy not doing well enough and credit
risks surface. Caveat emptor to those
piling in. High yield has had such a good
recent run that we have been taking some
profits and selling some positions in our
Investment Income Builder portfolio.
Q: China:
Economic growth continues to
slow in China, which is now grappling
with some debt issues of its own. Capital
outflows have cut the People’s Bank of
China’s foreign reserves to about $3
trillion from $4 trillion in mid-2014, even
as the central bank has tightened capital
controls. Chinese equity markets were
among the worst performing in 2016. Yet
China’s Producer Price Index, as noted,
recently turned positive. What’s the outlook
for the country’s economy and markets?
BF:
Recent Chinese manufacturing
Purchasing Managers’ Index (PMI) data
continue to be encouraging with No
-
vember at 51.7 compared with October’s
51.2 (50 indicates expansion). Non-
Manufacturing PMI was 54.7, up from
54.0. The data include a sub-index
construction component that dropped to
60.4 from 61.8, as tighter home-pur
-
chasing measures impacted the sector.
Chinese investors like real estate. The
services sub-index rose to 53.7 from
52.6, encouraging a view that the
economy is becoming more balanced,
though state-owned investment remains
an important driver, and is up 20% in
the first 11 months of 2016. Private
investment was up 3.1%.
The debt level is what makes investors
nervous about China. It’s running about
265% of GDP. Private sector credit
Caveat emptor
to those piling in. High yield has had such a good recent run that we
have been taking some profits and selling some positions.
Stretched Valuations, Faster Growth and Noisy Politics Ahead | 5
growth declined steadily from over 20%
year-on-year in April 2013 to around
12% since the summer of 2015. And since
then local government bond issues and
domestic credit have expanded steadily,
with annual credit expansion peaking last
spring. Like in Japan, this debt is largely
internal and supported by high domestic
savings, which amount to about 50% of
income. While the debt level remains a
concern, it is not expected to unravel any
time soon.
Equity markets will be influenced
by flows as currency worries and rhetoric
from the Trump administration blow
against business fundamentals, which
remain generally healthy in the private
sector and China’s internet, telecom,
energy, and commodity sectors, where we
have exposure.
BM:
Chinese stocks were left behind a bit
in 2016. But I’m okay with China’s
outlook. The big state-
owned banks may
have to sell more equity, and the govern
-
ment may have to print money to bail
them out. I also think China’s private
debt is probably manageable, and that’s
certainly true at the household level. And
the same thing about people getting up
and going to work applies there, too,
nights and weekends included. I’m not
bearish on China. It’s an
industrious and
economically
ambitious place.
The chances to make money in China are
pretty good. Enthusiasm for China ebbs
and flows as the years go by. In the
second quarter of 2015, the stock market
was soaring to nearly nine-year highs.
That wasn’t so long ago. Now it’s stum
-
bling along. But there are some great,
attractively priced companies in China.
As for China’s economy, the government’s
challenge is to continue rebalancing
growth toward more consumption and
less investment. They’re doing it.
Q: Oil:
Shifting gears–What about oil?
Organization of the Petroleum Exporting
Countries (OPEC) and its aligned
non-OPEC producers recently agreed to
cut output by 1.76 million barrels a day
(b/d). The deal spurred a roughly 20% jump
in oil prices, which are now up around
100% from their year-ago lows. OPEC is
reportedly targeting $60 to $70 per barrel
oil prices, but that level leaves quite a lot of
U.S. shale oil production economic. What’s
the outlook for oil prices?
BM:
I think they’ll be volatile. But over
time, if consumption continues to rise,
we will see firm oil prices. Investment in
new production is off globally. The guys
financing the last big rounds of industry
investment to achieve 95 million barrels
a day of OPEC and non-OPEC output
are basically not spending that money
anymore. In the U.S., a lot of people
assume you can turn a key or push a
button, and theoretically I think they
can. But many people supporting that
effort are not going to go back to North
Dakota without a huge increase in pay.
They can get paid to build things
elsewhere. They have more location and
job choices now.
Net oil demand growth was up 1.4
million b/d last year. Most energy
analysts expect more than 1 million b/d
in demand growth this year. Oil inven
-
tory watchers think more oil will be
consumed than produced starting this
spring. It could happen. Electric vehicles
aren’t arriving that fast. And when global
inventories start to decline, and odds are
they will, then oil prices will begin to
overcompensate. How much they have to
overcompensate before capital comes back
in, we’ll see, but it will also have to go on
for a while to make it evident that
somebody’s getting rich.
Q: As a fundamental, bottom-
up
research shop:
Thornburg focuses on
individual stocks and bonds. But the
degree of sector dispersion across the MSCI
World Index since mid-2016 is striking,
with consumer staples, telecom, real estate,
utilities, and health care all down mid-sin
-
gle digits, and industrials, energy,
materials and especially
financials posting
double-digit advances. How sustainable
are the dynamics driving the dispersion?
BF:
The dispersion in sector results has
differing origins. Consumer staples
corrected from overvaluation and were
used as a source of funds as the market
rotation developed. Telecom and utilities
reflected classic behavior as potential
moves up in interest rates became
apparent. Health care sold down on the
expectation of no matter who won the
U.S. election, drug pricing freedom
would be curtailed. Much of the adjust
-
ment in these sectors seems to have
occurred. Industrials, materials, and
financials are still under repair and
relatively inexpensive on normalized
earnings. Results should improve over
the next several years. While only time
will tell if there is more upside, these
sectors had been the most depressed on
cyclical fears.
BM:
What’s striking to me is the
in
-
tra
-sector dispersion around the globe. So
telecom in the U.S. has done way better,
with roughly 20% returns in 2016, and
outside the U.S. it’s produced a negative
In the second quarter of 2015, the stock market was
soaring to nearly nine-year highs. That wasn’t so long
ago. Now it’s stumbling along. But there are some
great, attractively priced companies in China.
6 | Year-Ahead Outlook 2017
return of 8% or so. Among utilities, in the
U.S. they’re up around 12%, and ex-U.S.
they’re also down around 8%. In consumer
discretionary and consumer staples, and
some other sectors, it’s much the same
story. I think that’s where there’s opportu
-
nity. A couple years or so ago, it was
exactly the opposite scenario.
Given U.S. blue chip returns, some
wonder why invest outside the U.S. But it
flips around. If the U.S. has outperformed
ex-U.S., maybe you should go where
relative bargains and more potential upside
are found. There’s also another point to
consider: right now the dollar spends well
outside the U.S., and it’s not just for
vacationing in Europe. For U.S. investors,
overseas investments cost less now.
Q: Return expectations:
We hear much
about investors having to lower their
return goals. Should pensions, endow
-
ments, and other investors expect lower
future returns?
BF:
Pension funds lowering return goals
is a reflection of aligning expected returns
with results produced in recent years. Part
of the adjustment likely reflects the low
interest-rate environment in recent times
and exceptional bond returns over the
past decade, until recently, as well as
fairly modest equity returns of the last
few years. With interest rates rising, bond
total returns may slide some, but the
income opportunity will be improving.
Investors using a laddered maturity
approach to their bond portfolio as
practiced for decades at Thornburg have
no need to reduce return expectations for
bonds in the long run. Equity return
opportunities in diversified portfolios are
much like in the past; frustratingly
volatile, but as potentially rewarding over
time as ever.
BM:
Public pension managers have set
return targets too high, higher than
earnings for the most part. They were also
putting too much money in illiquid and
low-volatility investments, given the long
duration of their liabilities portfolio. They
can have a certain amount in illiquid
investments. But they’ve learned that if
stock prices go down, illiquid product
prices go down even more.
Q: Active/Passive:
Ground-level
interest rates and quantitative easing
proved a tide that lifted nearly all boats,
to the
benefit, it seems, of passive invest
-
ment over the discriminating, valuation-
sensitive approach of active managers. As
U.S. rates rise, what’s the impact on
market efficiency, and should active
investors, via price discovery, have a
better shot at outperforming?
BF:
I am not sure that rising rates make
the market more efficient. Active manag
-
ers always have a shot at outperforming
passive products. It comes down to
execution and to a lesser extent the
market environment, which of course
includes interest rates. The most aggres
-
sive growth active managers would expect
to do well in rising stock markets and
value managers do relatively better in
sinking markets. Both have the opportu
-
nity to outperform in either market, but
the odds change when there is momen
-
tum in market direction.
Passive management is also not without
risk. When material market corrections
occur, passive investors feel it. Of course
they can redeem and go to cash. Getting
back in is the other half of that trade, and
not always psychologically easy.
BM:
This debate’s been going since I was
in graduate school in the late 1970s.
Sometimes it’s more intense, sometimes
less. Right now it’s intense because in
periods of financial repression active
management on average has underper
-
formed passive investments. But I also
think truly active managers always have an
opportunity to outperform. Although
2016 didn’t pan out for all of Thornburg’s
equity funds, every one of our equity
mutual funds outperformed from incep
-
tion to the end of last year. Despite periods
when they underperformed their bench
-
marks, they added value over time.
n
With interest rates rising, bond total returns may slide
some, but the income opportunity will be improving.
Investors using a laddered maturity approach to their
bond portfolio as practiced for decades at Thornburg
have no need to reduce return expectations for bonds
in the long run.
Stretched Valuations, Faster Growth and Noisy Politics Ahead | 7
Important Information
Thornburg Investment Income Builder Fund
Top 10 Holdings (as of 11/30/16)
Holding
Percentage
China Mobile Ltd.
4.3%
Royal Dutch Shell plc
3.5%
JPMorgan Chase & Co.
3.5%
CME Group, Inc.
3.5%
Atlantia S.p.A.
2.8%
Orange SA
2.4%
The Home Depot, Inc.
2.3%
BT Group plc
2.2%
Walgreens Boots Alliance, Inc.
2.1%
Merck & Co., Inc.
2.0%
Thornburg Global Opportunities Fund
Top 10 Holdings (as of 11/30/16)
Holding
Percentage
Level 3 Communications, Inc.
6.6%
Altice N.V.
5.3%
Aena S.A.
5.0%
T-Mobile US, Inc.
4.9%
Alphabet, Inc.
4.6%
Mondelez International, Inc.
4.6%
Barratt Developments plc
4.5%
Baidu, Inc.
4.3%
Citigroup, Inc.
4.3%
CF Industries Holdings, Inc.
3.9%
The views expressed are those of Thornburg Investment Management. These views are subject to change at any time in response to changing circumstances in the markets and are
not intended to predict or guarantee the future performance of any individual security or the markets generally, nor are they intended to predict the future performance of any
Thornburg Investment Management account, strategy or fund.
Securities mentioned herein are for illustrative purposes only and are presented to describe the due diligence process for purchasing or selling an individual stock. Under no circum
-
stances does the information contained within represent a recommendation to buy or sell any security. This information is current as of the date indicated and represents current
holdings of Thornburg; however, there is no assurance that any security referenced will remain in any portfolio and Thornburg undertakes no obligation to update the information or
otherwise advise the reader of changes in its ownership of the holdings. It should not be assumed that any of the referenced securities were or will be profitable or that the invest
-
ment decisions we make in the future will be profitable.
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 fluctua
-
tions. Portfolios investing in bonds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds. The value of bonds will fluctuate relative to
changes in interest rates, decreasing when interest rates rise. Investments in the Funds are not FDIC insured, nor are they bank deposits or guaranteed by a bank or any other entity.
The laddering strategy does not assure or guarantee better performance than a non-laddered portfolio and cannot eliminate the risk of investment losses.
EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company’s operating cash flow based on data from the company’s income
statement.
Enterprise Value (EV) – A measure of a company’s total value, including market capitalization, total debt, minority interest, and preferred shares, minus cash and cash equivalents.
Gross Domestic Product (GDP) – A country’s income minus foreign investments: the total value of all goods and services produced within a country in a year, minus net income from
investments in other countries.
The MSCI World Index is an unmanaged market-weighted index that consists of securities traded in 23 of the world’s most developed countries. Securities are listed on exchanges in
the U.S., Europe, Canada, Australia, New Zealand, and the Far East. The index is calculated with net dividends reinvested in U.S. dollars.
P/E – Price/Earnings ratio (P/E ratio) is a valuation ratio of a company’s current share price compared to its per-share earnings. P/E equals a company’s market value per share
divided by earnings per share. Forecasted P/E is not intended to be a forecast of the fund’s future performance.
Producer Price Index (PPI) – Measures the average change over time in selling price received by domestic producers for their goods and services. The prices included in the PPI are
from the first commercial transaction for many products and some services.
Purchasing Managers Index (PMI) - An indicator of the economic health of the manufacturing sector and for the economy as a whole. The PMI index is based on five major indicators:
new orders, inventory levels, production, supplier deliveries, and the employment environment. A PMI of 50 or higher generally indicates that the industry is expanding.
Quantitative Easing (QE) – An unconventional monetary policy in which a central bank purchases financial assets from the market in order to lower interest rates and increase the
money supply.
The S&P 500 Index is an unmanaged broad measure of the U.S. stock market.
The performance of any index is not indicative of the performance of any particular investment. Unless otherwise noted, index returns reflect the reinvestment of income dividends
and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. Investors may not make direct investments into any index.
U.S. Treasury securities, such as bills, notes and bonds, are negotiable debt obligations of the U.S. government. These debt obligations are backed by the “full faith and credit” of the
government and issued at various schedules and maturities. Income from Treasury securities is exempt from state and local, but not federal, taxes.
Yield Curve – A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates.
Past performance does not guarantee future results.
Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus or summary prospectus containing
this and other information, contact your financial advisor or visit thornburg.com. Read them carefully before investing.
Thornburg mutual funds are distributed by Thornburg Securities Corporation.
1/19/17
Thornburg Investment Management
| 2300 North Ridgetop Road | Santa Fe, New Mexico 87506 | 877.215.1330 | www.thornburg.com
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To learn more, please visit www.thornburg.com
The views expressed by the portfolio managers reflect their professional opinions and are subject to change. Under no circumstances does the information contained within represent a recommendation to buy or sell any security. Investments carry risks, including possible loss of principal. Investments carry risks, including possible loss of principal. Portfolios investing in bonds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds. The value of bonds will fluctuate relative to changes in interest rates, decreasing when interest rates rise. Unlike bonds, bond funds have ongoing fees and expenses. Investments in the Funds are not FDIC insured, nor are they bank deposits or guaranteed by a bank or any other entity. Please see our glossary for a definition of terms: http://www.thornburg.com/legal/glossary.aspx Thornburg mutual funds are distributed by Thornburg Securities Corporation. Thornburg Investment Management, Inc. mutual funds are sold through investment professionals including investment advisors, brokerage firms, bank trust departments, trust companies and certain other financial intermediaries. Thornburg Securities Corporation (TSC) does not act as broker of record for investors.
Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus or summary prospectus containing this and other information, contact your financial advisor or visit our literature center. Read them carefully before investing: https://www.thornburg.com/forms-literature/product-literature/mutual-funds/index.aspx
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