Nobody wants to invest in questionable, weak, unethical or incompetent companies. And investing in the right company for financial success is the holy grail we’re all searching for. This clearly isn’t easy, and nobody is perfect. If they were, they would be the only investment option in town. Thornburg IM has asked four of its equity portfolio managers (Brian McMahon, Miguel Oleaga, Lei Wang and Josh Rubin) what their criteria are for identifying strong companies from the relevant universe for their respective strategies, what impact the COVID- 19 pandemic has had and how ESG considerations are relevant to determining whether a company is strong.

Can you describe your research process?

Miguel Oleaga: Our process involves narrowing the universe of stocks by looking for what we believe are strong companies, which drive idea generation. We perform deep fundamental research on those names, ultimately generating a short list of investable ideas and then investigating those ideas thoroughly. The Global Opportunities portfolios utilize an intrinsic value framework that seeks to understand if a business is likely to create value over the long-term, with less of an emphasis on near-term valuation metrics. Often market commentators and investors attempt to assess valuations and opportunities simply on near-term statistical metrics, such as a P/E or a P/B multiple. In our view, these can be useful datapoints but do not paint the complete picture of whether a business is fairly valued. To be able to thoroughly analyze and determine intrinsic value, we need to know what we own and therefore limit our holdings to about 30–40 stocks.

Josh Rubin: A key consideration for our emerging markets investment strategies is really honing in on the strong businesses, not just high profit margins, but a really strong management team, strong corporate governance, strong operational policies, strong market positions and the other types of components that lead companies to win market share or outgrow their industry competitors.

Lei (“Rocky”) Wang: We think in the next phase of the recovery the outperformance of higher beta value names may give way to companies which can demonstrate earnings growth and may therefore favor bottom-up stock selection and a more balanced core approach to portfolio construction, both of which we have practiced successfully for more than two decades.

What adaptations to the process have you made as result of the COVID-19 pandemic and the resulting changes in the environment?

Miguel Oleaga: We haven’t made any changes to our process. We believe a well-thought-out and executed philosophy and process should withstand the tests of time. I do think COVID has changed the investment landscape. For example, the recent increase in retail participation in equity markets means more investors competing in the market, which, ultimately, should make the markets more efficient with periods of excessive price moves. However, increased market efficiency also means simple strategies that utilize valuation multiples or other metrics that can be easily accessed via online trading platforms or financial websites will create little to no excess returns on average. In fact, greater retail participation will mean that achieving excess returns consistently makes having a well-thought-out investment philosophy and rigorous process even more critical to add value over time.

Rocky Wang: We haven’t changed our process, but where we focus has shifted. For example, the inflation narrative and sentiment are getting hot these days, which trigger sometimes erratic rate movements. But we focus on fundamentals rather than headlines, so we are always trying to see the reality vs. perception.

Commodity prices are definitely in the news these days as they have been shooting up. Is that due to the shortage of the commodity production itself, or just a paucity of qualified drivers who can deliver the commodity from point A to B? Is it transitory or structural in nature? We care about the depth of the details like that and how to construct a portfolio which will sail through this noisy patch.

Brian McMahon: Our process of finding investments that offer both resilience and growth over time has remained consistent. If you look at our top holdings, you’ll see that we have both. We’re not loaded up with companies that have plus and minus 20 percent revenues, based on the cycle, but we do have companies that have tended to grow their revenue, cash flow and dividends over time. And that’s what the Income Builder portfolios are all about.

It’s a yield-starved world out there. So, we think that dividend payers are especially important and especially timely right now when some of the safest bonds and longer duration bonds look a little iffy.

How do ESG considerations help determine whether a company is “strong” or not?

Miguel Oleaga: ESG considerations provide investors with a toolkit for assessing whether a business is creating value for all its stakeholders, from employees to its community to shareholders. ESG also provides insight into analyzing a business’s go-forward prospects—a lens on whether that company is competing in expanding or contracting markets due to evolving environmental or regulatory considerations, for example.

Governance is another important set of issues where poor practice can lead to substantial corporate risk such as expensive legal actions and negative publicity. In our opinion, these insights about where risks lie are crucial in determining what the business is worth and providing effective stewardship of the investment.

Josh Rubin: Particularly in emerging markets where transparency might be lower or the regulatory oversight regime might not be as strong or as advanced as we see in developed markets, we do think that consideration of ESG characteristics are very important for every investment.

We are not using a negative overlay investment strategy—not avoiding, for example, carbon-producing or alcohol beverage companies, but we look at each of the relevant industry risk factors of ESG to be sure we are mitigating risk in our portfolios, particularly in an emerging markets context, which can mean higher volatility, abrupt shifts from value to growth and vice versa, a heavy retail component and less sophisticated investors.

Rocky Wang: We use ESG analysis to find what we believe are financially sustainable businesses. At the end of the day, active managers identify mispricings in the market to create a diversified portfolio that will outperform. ESG analysis is a powerful tool to help accomplish that goal.

Understanding the stage in a company’s lifecycle is important for both traditional fundamental and material ESG analysis. Emerging franchises often race to grow employee headcount, assets and processes to support early life hyper growth. As a company begins to mature it can leverage these resources to more fully capture profits from the competitive advantages it has established. But it can also take a deeper examination of its impact on society and work to align its business with benefits for the communities in which it operates.

Important Information

The performance data quoted represents past performance; it does not guarantee future results.

Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc.

The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management, Inc. This information should not be relied upon as a recommendation or investment advice and is not intended to predict the performance of any 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 representations as 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. 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. This effect is more pronounced for longer-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. 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 equity securities are subject to additional risks, such as greater market fluctuations. 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 the Fund are not FDIC insured, nor are they bank deposits or guaranteed by a bank or any other entity.

Portfolios invested in a limited number of holdings may expose an investor to greater volatility.

Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

Investing in an ESG-focused strategy does not assure or guarantee better performance and cannot eliminate the risk of investment losses.

Important Information for UCITS Investors

This does not constitute or contain an offer, solicitation, recommendation or investment advice with respect to the purchase of the Funds described herein or any security. The Fund’s shares may not be sold to citizens or residents of the United States or in any other state, country or jurisdiction where it would be unlawful to offer, solicit an offer for, or sell the shares. For information regarding the jurisdictions in which the Fund is registered or passported, please contact Thornburg at contactglobal@thornburg.com or +1.855.732.9301. Fund shares may be sold on a private placement basis depending on the jurisdiction. This should not be used or distributed in any jurisdiction, other than in those in which the Fund is authorized, where authorization for distribution is required. Thornburg is authorized by the Fund to facilitate the distribution of shares of the Fund in certain jurisdictions through dealers, referral agents, sub-distributors and other financial intermediaries. Any entity forwarding this, which is produced by Thornburg in the United States, to other parties takes full responsibility for ensuring compliance with applicable securities laws in connection with its distribution.

The Fund is a sub-fund of Thornburg Global Investment plc (“TGI”), an open-ended investment company with variable capital constituted as an umbrella fund with segregated liability between sub-funds, authorized and regulated by the Central Bank of Ireland (“CBI”) as an Undertaking for Collective Investments in Transferable Securities (“UCITS”). Authorization of TGI by the CBI is not an endorsement or guarantee by the CBI nor is the CBI responsible for the contents of any marketing material or the Fund’s prospectus, supplement or applicable Key Investor Information Document (“KIID”). Authorization by the CBI shall not constitute a warranty as to the performance of TGI and the CBI shall not be liable for the performance of TGI.

Before investing, investors should review the Fund’s full prospectus and supplement, together with the applicable KIID and the most recent annual and semi-annual reports. Copies of these documents may be obtained free of charge from State Street Fund Services (Ireland) Limited, by visiting www.thornburgglobal.com or by contacting the local paying or representative agent or local distributor in the jurisdictions in which the Fund is authorized for distribution.

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 mortgagebacked securities (MBS) may bear additional risk. Investments in the Fund are not insured, nor are they bank deposits or guaranteed by a bank or any other entity.

No securities commission or regulatory authority has in any way passed upon the merits of an investment in the Fund or the accuracy or adequacy of this information or the material contained herein or otherwise. Neither this or the Offering Documents have been approved in any jurisdiction where the Fund has not been registered for public offer and sale. This information is not, and under no circumstances is to be construed as the Offering Documents, a public offering or an offering memorandum as defined under applicable securities legislation. Application for shares may only be made by way of the Fund’s most recent Offering Documents.