23 Nov 2009 Thornburg Value Fund - Q3 2009 Commentary ( Portfolio )
Looking forward, crisis appears to have been avoided but at the cost of increasing the government debt and the level of government involvement in the economy. The impact of increased national debt and government regulation on share prices may not be evident in the near term, but increased government debt is likely a precursor toward either higher taxes or inflationary monetary policy, and neither of those likelihoods are shareholder friendly. Similarly, increased government regulation has the potential to lower the economic growth rate and hamper corporate profitability. The potentially less friendly regulatory and interest rate environments are offset by what appear to be unusually attractive valuations. Although stocks are up sharply off the bottom, they are still down significantly from their peaks and it is possible that corporate profits will hit record levels in 2011.

In this challenging environment we are focused on executing the same investment philosophy and approach that has been successful over the long term. We continue to look for promising companies at a discount, and attempt to buy them when they are out of favor. Our basket approach is intended to provide a portfolio with a spectrum of opportunities as well as diversification of risks. In our Consistent Earner basket, we own stocks that we believe will prove more resilient than the average U.S. stock in a tough environment. Within our Basic Value and Emerging Franchise baskets, we invest in companies that we expect to lead when investors remember that the U.S. and global economies will eventually recover. Sound cash-generating businesses do have value.

fter the recent run-up in the market, many pundits are claiming that stocks are ahead of themselves. We remain cautiously optimistic, however. First, the market is actually lower than it was a year ago. The moment of crisis is behind us and the degree of uncertainty regarding the economy, home prices, and government policy is dramatically lower. Companies have reacted to the global downturn by aggressively cutting unnecessary expenses. So we find ourselves here today with stock prices lower, the economic outlook better, the level of uncertainty lower and potential corporate profitability higher. We do not try to time the market, but we believe the outlook for future earnings is far more important to share prices than where they happened to be trading in November 2008 or March 2009. For the companies in our portfolio, the outlook for future earnings appears very attractive relative to current share prices.