16 Jul 2010 Thornburg - Q2 2010 Commentary
Transocean (RIG) was our largest performance detractor during the quarter. The fear among some investors is that Transocean will end up being economically liable for a substantial portion of the pollution and/or third-party property damage liabilities. We have spoken with legal experts, sell-side analysts, other offshore drilling companies, Halliburton (did the cementing job for BP), and Anadarko (the non-operating partner with BP). After this research, our conclusion is that there are no likely scenarios where Transocean would be determined to be grossly negligent and therefore liable for associated environmental and property damage costs. Only time will tell whether there are material facts that we are unaware of or whether our analysis of the situation is correct. If we are correct in this assessment of Transocean’s liabilities, then we believe there is significant upside for the stock price. We are constantly monitoring developments and may change our point of view on Transocean at any time.

Other detractors for the quarter included Gilead Sciences (GILD), Monsanto (MON), technology stocks Dell (DELL) and Google (GOOG), Inverness Medical Innovation (IMA), and J.P. Morgan (JPM). Gilead’s quarterly results were mixed. We recently met with the President/COO of the company which reinforced our conviction in the investment thesis. Monsanto declined as management guided down revenues and earnings due to deteriorating pricing and market share for its herbicide product. We continue to like the genetically modified seeds business and think the company’s operating results can rebound.

We increased our energy exposure during the quarter as BP’s Gulf of Mexico oil spill brought down valuations for the entire energy complex. For example, we purchased Ensco, an offshore driller with no involvement in the oil spill. According to our analysis, Ensco’s mix of jackup and deepwater rigs, as well as their rigs’ specifications, locations and contracts, make them less vulnerable than other drillers to the regulatory risks created by the oil spill disaster. We also added to our existing energy holdings due to compelling valuations and our belief that the fundamentals of these companies remain intact.

The Senate passed financial reform legislation at the end of the quarter that will impact some of our holdings. The final outcome of the legislation remains uncertain, with the potential special TARP tax being the largest risk. Although both J.P. Morgan (JPM) and U.S. Bancorp (USB) are likely to have their earnings impacted negatively by the financial reform, we believe that the market has discounted a worse scenario than what will ultimately occur and their share prices should rise as the level of uncertainty declines.

We are optimistic on the outlook for equities. The cyclical recovery in company earnings is robust. Corporate balance sheets are extremely strong and free cash flow generation is unusually high. The Federal Reserve is likely to keep short-term interest rates at or near zero through year-end and probably well into 2011. The recent decline in long-term yields, with the ten-year treasury yield dipping below 3.0%, is indicative of a high degree of fear among investors. We believe the combination of these factors is extremely positive for stocks.

20 May 2010 Thornburg Value Fund - Q1 2010 Commentary
We believe the positioning of the portfolio today seems to leave some room for outperformance if the market has, in fact, gotten ahead of itself. As of March 31, 2010, our Basic Value basket of stocks was still larger as a percentage than our Consistent Earner basket (43.3% vs. 41.2%) – but importantly, we consider many of our Basic Value holdings to be relatively conservative. For example, we now have large weights in Exxon Mobile, Ace Insurance, and Transatlantic Holdings. Exxon is an industry leader with a stronger balance sheet and longer lived reserves than its industry peers, and the premium in its valuation is relatively modest. Ace Insurance and Transatlantic are both insurers with very strong balance sheets and conservative underwriting that should weather any environment reasonably well. These three companies are less volatile than typical Basic Value names, and if we were to include them with our Consistent Earners, the combined weight would be much larger than our Basic Value basket.

23 Nov 2009 Thornburg Value Fund - Q3 2009 Commentary
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.