1st Quarter 2012 Portfolio Manager Market Commentary Thornburg Developing World Fund
Lewis Kaufman, CFA Portfolio Manager
During the first quarter of 2012, the Thornburg Developing world Fund Developing World Fund returned 17.47% (A shares Performance without sales charge) versus 14.08% for the MSCI A shares, as of March 31, 2012 Emerging Markets Index. Markets broadly benefitted from surprising economic momentum in the United Since States and improved policy visibility in Europe, 1-Yr Incep. while several emerging markets introduced more Without sales charge -1.71% 12.23% accommodative fiscal and monetary measures. Countries with significant perceived external With sales charge -6.11% 10.01% vulnerability rallied sharply during the quarter, with MSCI Emerging the MSCI Turkey Index returning 27.1% in U.S. dollar Markets Index -8.80% 5.29% terms, MSCI India 20.1%, and MSCI Hungary 22.8%. Notably, currencies contributed 3.4% to the MSCI Periods over one year are annualized. Emerging Market Index returns during the quarter, Inception of the A shares is 12/16/09. compared to -5.7% for calendar year 2011. Performance data shown represents past Top contributors to performance for the quarter performance and is no guarantee of future included Brazilian retailer Companhia Hering S/A, results. Investment return and princi- Russian bank Sberbank of Russia OJSC, Chinese pal value will fluctuate so shares, when Internet company Tencent Holdings Ltd., Russian redeemed, may be worth more or less than online search provider Yandex, and Indonesian their original cost. Current performance food manufacturer Mayora Indah. Hering benefitted may be lower or higher than quoted. For from interest rate reductions in Brazil, falling cotton performance current to the most recent prices, and formal expansion plans for the company’s month end, visit thornburg.com or call 877- Hering Kids concept. Sberbank rose as high oil prices 215-1330. The maximum sales charge for and depressed valuations outweighed slower loan the Fund’s A shares is 4.50%. The Fund’s growth in the January and February periods. Tencent The total annual fund operating expense for participated in the broad rally in Chinese Internet A shares is 1.89%. Thornburg Investment stocks, and received improved recognition for the Management and Thornburg Securities emerging success and value of its microblog and social Corporation have contractually agreed to networking assets. Yandex appreciated as market share waive fees and reimburse expenses through trends versus Google stabilized. Mayora outperformed at least February 1, 2013, so that actual most Indonesian stocks as input cost pressures eased, expenses for A shares do not exceed 1.83%. following a year of sharp increases. The Developing World Fund may invest in shares of companies through initial public Detractors from performance included Taiwanese offerings (IPOs). IPOs have the potential to online retailer PChome Online, Argentine bank Banco produce substantial gains and there is no Macro, Latin American telecommunications provider assurance that the Fund will have continued NII Holdings, Turkish financial services firm Turkiye access to profitable IPOs. As Fund assets Garanti Bankasi, and Chinese online video company grow, the impact of IPO investments on performance may decline. Youku. PChome suffered from a business lull ahead
1 of the addition of the company’s third warehouse in Investments in the Fund carry risks, including April 2012, which should lead to improving growth possible loss of principal. Special risks may dynamics. Banco Macro suffered from government be associated with investments outside policy actions, with capital controls, energy the United States, especially in emerging concession controversy, and stagnating fiscal reform markets, including currency fluctuations, contributing to share price weakness. NII continued illiquidity and volatility. Investments in small to experience fundamental deterioration ahead of its capitalization companies may increase the planned 3G network expansion, and declined further risk of greater price fluctuations. Investments following our sale intra-quarter. Garanti struggled in the Fund are not FDIC insured, nor are early in the quarter, only to rally sharply off its they deposits of or guaranteed by a bank or January lows. While we sold Garanti, we redeployed any other entity. the proceeds into Bizim, which performed comparably and harvested a significant tax loss for shareholders. Top 10 Holdings as of 3/31/12 Youku struggled after some initial enthusiasm surrounding its pending acquisition of smaller peer Baidu, Inc. ADR 3.2% Toudu. Mayora Indah 3.2%
Puregold Price Club, Inc. 3.0% Looking forward, while emerging markets have risen nearly 30% from recent lows, risks abound. In Europe, Totvs SA 2.9% sovereign funding needs are significant, and we may Yandex NV 2.8% experience continued policy volatility as refinancing Trinity Ltd. 2.8% deadlines materialize. Moreover, 2012 is an election Hengdeli Holdings Ltd. 2.8% year in France, and momentum for the socialist party Sberbank of Russia 2.7% may cloud the broader European reform agenda. China also faces a political transition in 2012, and Potash Corp. of Saskatchewan, Inc. 2.6% while this process should provide ample motivation O'Key Group S.A. 2.5% to policy markers, economic growth could disappoint. Perhaps most ominously, confrontation with Iran and higher oil prices remain distinct possibilities, at a time when countries such as Indonesia and India continue to pursue energy price subsidies.
At the same time, we have remarked in recent months that perfect foresight in fall 2011 into future policy inertia would have led to suboptimal investment decisions. Indeed, many seasoned investors did not fully participate in the rally that followed, and even impaired capital by selling near market lows. We remain focused on creating a portfolio with the potential to outperform in up and down markets — consistent with our primary goal of long-term capital appreciation. Since the inception date of December 16, 2009, the Thornburg Developing World Fund has returned 30.2% (for the A shares on a cumulative basis), versus 12.5% for the MSCI Emerging Markets Index. It is our hope that our focus on financially sound, free-cash-flow generative companies will allow us to protect capital in difficult market environments, while proving ample upside participation in better times.
Important Information
The view expressed by the portfolio manager reflects his professional opinion and should not be considered buy or sell recommendations. This view is subject to change.
There is no guarantee the Fund will meet its objectives.
Securities, countries, and sectors mentioned are presented for the general information of Fund shareholders. Portfolio holdings are subject to change daily. Under no circumstances does the information contained within represent a recommendation to buy or sell securities.
The MSCI Emerging Markets 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 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
The MSCI country indices are free float-adjusted market capitalization indices that are designed to measure equity market performance in that specific country in U.S. dollars.
2 The performance of any index is not indicative of the performance of any particular investment. Keep in mind that indices do not take into account any fees and expenses of the individual investments that they track. You cannot make an investment in any index.
Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus containing this and other information, contact your financial advisor or visit thornburg.com. Read it carefully before investing. Thornburg Funds are distributed by Thornburg Securities Corporation® 2300 North Ridgetop Road Santa Fe, New Mexico 87506 877.215.1330 4/10/2012 www.thornburg.com TH2144
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