Thornburg Investment Management

After false starts in the last few years, we believe emerging markets are set to deliver strong performance in the year to come.

Risk assets begin 2020 at lofty price levels. Are stocks fully valued, or rather a relative value versus global bonds?

Read a conversation with Thornburg Chief Investment Strategist Brian McMahon who surveys the unfolding investment landscape.

Supply and demand growth in liquefied gas benefits some producers more than others. For investors in U.S. upstream gas producers and Gulf Coast LNG infrastructure, caveat emptor.

The market has bid up Brazilian assets in anticipation of economic reforms, but the optimism should be well measured and individual securities well picked.

Learn how to create sustainable retirement income for your clients by attending this business-building webinar from Thornburg Investment Management.

Whether your clients are planning for retirement or are already retired “The Process of Managing Retirement Income” webinar will provide an easy way for you to talk with clients about:

• The best spending policy for retirement

• A portfolio structure to help manage client investment behavior and improve outcomes

• The importance of dividends in retirement

Presented by Andrew Rice, Thornburg’s divisional sales manager for the eastern U.S., who has been helping advisors build their businesses for almost 20 years

“There’s no free lunch” is an axiom often heard in both investing and economics. But what if there’s a way to limit the pain of market downdrafts and still gain from the rebounds? Can disciplined security selection, sound portfolio construction and calibrated rebalancing, as position size and market dynamics evolve, improve the odds for risk-adjusted outperformance, if not necessarily bagging something for nothing?

The Fed is poised to join the global easing bandwagon, fueling a surge in risk asset prices. As market distortions from easy money grow, so does the importance of security selection and portfolio allocation.

For yield-seeking investors, dividend-paying stocks may present a compelling risk-adjusted return opportunity over bonds.

The Fed is tasked with keeping prices stable, unemployment low and long-term interest rates moderate. The monetary alchemy with such unstable elements is coming under review.

Given the rise of passive strategies in both equity and fixed income markets, today’s investors often hold actively managed strategies to a higher standard of performance than they have in the past. The failure of some “core bond” strategies to meet investor expectations has prompted them to search for alternative solutions.

Those of us who have chosen a career in the financial services industry believe in the value of financial advisors. We know that financial experts are important for any individual who is trying to achieve a financial goal. But not everyone agrees with us.

Big-ticket, ultra-short notes force muni SMAs with low minimums to buy longer-term paper at rich prices, likely giving clients more heartburn than total return.

Despite sprinting higher so far this year, developing country equities appear well positioned to sustain their momentum, and with less volatility.

Surfing for opportunities while using vigilance to avoid wipeout.

Just because the market is celebrating the Fed’s policy u-turn doesn’t mean volatility is a thing of the past. Disconnects between fundamentals and assets prices don’t make for market stability.

Turns out price matters for excess returns, and that what’s worked before doesn’t necessarily persist into the future. “Many factors aren’t real.”

Caveat emptor: current technical supply and demand flows favor issuers more than buyers. But diligent, disciplined investors can always find attractively priced, fundamentally sound bonds.

While investors should be cognizant of the complexities and risks around Brexit, they should be just as aware of the opportunities in select U.K.-based businesses.

Will emerging markets stocks rebound in 2019? Attractive valuations, strong forecast earnings growth, structural reforms, and an abating dollar headwind suggest they will.

It appears the “Powell Put” has been exercised as the Fed chief declares no “pre-set” course on rates and no “hesitation” to change its balance sheet runoff. But does the economy still need Fed accommodation, or do markets just want it?

The U.S. Federal Reserve has roiled markets with its latest rate hike and comments from Chairman Jerome Powell, who disappointed many investors as insufficiently dovish in his December 19 remarks.

The trade conflict and Fed rate policy are buffeting markets at a time China was already grappling with debt challenges at home. But the volatility may be masking good economic fundamentals globally, reform efforts in China, and attractive investment opportunities.

Conventional market wisdom two years ago didn’t look right for long, as gains in industries seen as politically favored faded while one sector expected to suffer quickly rebounded.

Positive catalysts are in place in all three countries, and across emerging markets valuations and earnings expectations make for a potential rebound in 2019.

Preparations ahead of a hurricane and rebuilding after it temporarily boost tax receipts in affected areas. But longer-term effects on muni markets are usually negligible.

Even before the market selloff, downtrodden value stocks were perking up as pricey growth stocks stumbled. But durable index-level shifts are harder to call than individual stock price disconnects from business fundamentals.

Deep declines are usually followed by rebounds that leave emerging market stocks with gains by year end, as the structural tailwinds are driven by steadily expanding middle classes. Meaningful, consistent exposures to the asset class are key to capitalizing on the long-run double-digit returns.

High-yield returns have been great lately, as technical flows, fundamental factors and good economic growth align. But tight spreads, lofty net leverage and event risk don’t make for smooth sailing ahead.

If the efficient markets hypothesis is questionable at the stock level, it’s more so at the index level. As the number of indices skyrockets, the number of companies declines, and passive flows grow, active price discovery becomes more and more valuable.

Turkish asset prices have plummeted this year, bringing their valuations to historically low levels. That presents potentially attractive opportunities to investors looking for quality stocks at bargain-basement prices. Yet some selloffs don’t necessarily end with stocks and bonds at oversold levels if their prices largely reflect current or near-term risks, both company specific and macroeconomic.

Emerging market stocks are trading near bear market territory, but that’s par for the course for longer-run, rising returns.

Many forces undercut and bolster the greenback. Rather than accepting unknown risk around its near- or long-term direction, dollar-based equity investors may be better served using currency hedges so they can focus more on the individual merits of overseas securities.

Team performance matters more than star players or a large resource base. And in a rapidly changing world, Totaalvoetbal can help teams adapt.

Risk to the euro resurfaces in an unlikely governing coalition and challenging economic agenda, but Italy’s top stocks don’t face the same perils as its government bonds.

High-quality bonds and defensive stocks are on the ropes. And U.S. blue-chips look poised to roll over, if history is any guide. But what if it isn’t?

The Fed chairman makes clear the bar for slowing monetary tightening is higher nowadays, and argues emerging markets are much better positioned to handle higher U.S. yields than they were before.

Bond supply is plummeting, but so is demand. And rates are rising. Where are the silver linings?

Stocks slide on rising rates and yield curve inversion concerns, but a recession doesn't look likely, judging by other economic data and the high-yield bond market.

Yet the earnings potential of developed and emerging markets stocks is real, since they are at earlier points in their respective business cycles.

Facebook’s margins could ebb this year, but they remain at elevated levels and profits could still grow meaningfully.

Tech and financials led the recent selloff, as headline noise and regulatory risks spooked investors. But strong corporate fundamentals, including earnings growth, should ultimately drive stock returns.

While U.S. tech giants are effective monopolies, they are so in an unconventional way, making taxing them easier than breaking them up.

China has dropped norms to allow President Xi Jinping to remain in power after his second term ends. While worrisome at first blush, the populist turn and consolidation of power likely has near-term economic and financial market benefits, and longer-term political risks. Thornburg's Lei Wang weighs in on the populist turn in China, which is among a growing contingent of populist nations.

EM ETFs suffered deviations in their market prices relative to their net asset values, with their total returns materially underperforming the broad emerging market index.

Not necessarily the Fed, whose own research suggests wage growth is not a reliable indicator of future inflation. But markets, it appears, aren’t sure what to think.

Investors worried about wage and inflation data should appreciate the underlying strength of the economy, not to mention strong corporate earnings. The market volatility is creating better entry points for longer-term investors.

At the beginning of every year, a number of investment professionals at Thornburg voluntarily place their informal, internal-only bets on which three securities—from stocks to currencies or other financial assets—might together produce the best beta-adjusted returns in the year ahead.

The FCC’s roll-back of net-neutrality regulation sparked intense political debate about how the internet should be governed, in particular how ISPs handle and price content transmission. But the internet’s rapid evolution, the ISPs vertical integration into content, the bargaining power of the tech and media giants and anticipated 5G investment returns largely supersede regulatory shifts.

Mexican asset prices reflect current and potential economic and political risks. But a likely turn in the country’s economic cycle makes for a potentially attractive entry point for longer-term investors, and the financial sector may soon benefit.

Emerging markets have benefitted from both improving fundamentals and bullish sentiment driving inflows to the asset class. Individual country risks, however, are poised to rise. Be selective.

Lately, investors have been focused on headlines about China’s twice-a-decade congress reshuffling, looking for signs of leadership changes to come in the world’s second-largest economy. But a different kind of leadership change in China is well underway – and investors should take note.

Growth in the country's corporate debt load has finally leveled off this year as financial conditions and regulatory oversight tighten. That's good. But rebounding returns on incremental assets and common equity are even better.

Economic dislocations, regulatory shifts or intense competition can change the market dynamics confronting big, and at times unwieldy, conglomerates. They often force corporate restructurings that can result in more effective capital allocation and returns for investors who recognize promising new strategies amid the prevailing market pressures.

In its most concerted effort to reverse slowing credit and economic growth to date, New Delhi devises a $32 billion public sector bank recapitalization.

Zhou Xiaochuan appeared to be talking about China, given his contextual warnings about the country’s high corporate and rising household debt loads. But the message may apply to frothy and debt-laden markets globally.

Low market correlations make it easier for active portfolio managers to stand out—positively or negatively. But what matters most is how a portfolio of select stocks performs through market cycles, regardless of correlations.

India has implemented measures that combined should generate a surge in economic growth, corporate earnings, and double-digit annualized stock returns over the next decade.

Fed’s balance sheet unwind comes amid mixed U.S. data, but the global acceleration in growth and inflation gives it cover to continue normalizing policy and reduce market distortions. The upswing might also give pause to those asserting the death of the Phillips Curve.

Versatile, relative-value analysis of securities across sub-sectors and hybrid asset classes can help fixed income teams negotiate a challenging, expansive, potentially rewarding terrain.

Future growth projections for electric vehicles vary dramatically, but all reflect real opportunities for fundamentals-focused investors surveying the links in supply and production chains.

Frothy stocks and well bid bonds can undercut portfolio performance if rates move higher, though long/short equity strategies can support long-run returns.

Select short-term government bond funds offer minimal risk and some income as higher-risk assets get frothy and tail risks loom.

Prices of American depositary receipts reflect both a foreign firm’s locally traded share price and the exchange rate movements of its home country’s currency against the dollar.

Geopolitics is shaking global markets, with the epicenter of the latest tremors coming from the Korean Peninsula. Fiery rhetoric out of Pyongyang is nothing new. But it is certainly novel coming from the Oval Office.

Stocks of some innovative companies with differentiated business models may be unfairly punished along with those genuinely vulnerable to Amazon’s disruption.

“Smart Beta” ETFs and their low-volatility ETF progeny may deliver a lower beta against their relevant benchmarks, but they’re not immune to bouts of volatility, and their returns frequently come up short.

Robust portfolios that have the greatest probability of performing across various macro outcomes can effectively mitigate and navigate the unpredictable twists and turns of dynamic markets and economies.

The divergence this year in the performance of the emerging markets stock index and commodities prices reflects improved earnings quality and valuations of developing country stocks, not to mention big changes at the top of the index.

Low Treasury yields and high equity prices aren’t necessarily contradictory. Both suggest expectations of continued unexciting growth, low inflation and a steady Fed. What could go wrong?

Bank loan products are often seen as a nice alternative to high yield in a rising interest rate environment, but the conventional wisdom about their interest rate protection and security needs a credit check.

As outflows hit U.S.-focused equity mutual funds, international and emerging market stock funds are seeing massive inflows, bolstering strong share price performance of overseas markets this year. Despite the investor rush abroad, plenty of upside could remain.

MSCI has taken a cautious approach to A share inclusion that encourages China to increase foreign investor access and ultimately ability to redeem and repatriate funds in exchange for greater future index weightings. It’s a sensible plan.

Fed hikes rates again, even as inflation falls further from target and financial conditions continue to ease. Smooth sailing ahead? Beware the leverage risks building below the surface.

Munis sold off in the wake of Trump’s election victory, but have been clawing their way back up as investors glean the difficult paths ahead for tax reform and infrastructure spending.

Beijing’s push to forge a balance between domestic steel supply and demand bodes well for pricing on potentially undervalued steel stocks.

Investors interested in long/short equity mutual funds would be well advised to consider more than their much-more competitive fees vs. private hedge fund peers. To genuinely hedge the long components of a portfolio, look for lower net long exposures in a long/short equity allocation, and added value on the short side even in rising equity markets.

Brazil’s stocks and currency took a beating as President Temer was implicated in a corruption scandal, endangering the government’s reform agenda and fragile economic recovery.

Political pressure on the chaebol is poised to rise, but corporate governance efforts already underway and end-market demand have proven tailwinds that have so far trumped politics.

In this Q&A, Thornburg’s Connor Browne doubts the Senate will pass the House’s American Health Care Act (AHCA) in its current form, and is cautious that the status quo may even prevail.

Political risk may have ratcheted lower after the first round of the French presidential election. But the latest jump in asset prices across Europe appears to have tailwinds well beyond politics.

Emerging markets have shot out of the gate in early 2017, even as the Fed is hiking rates. Renewed global growth, earnings cycle and valuations bode well.

ETFs can have significant costs that aren’t entirely evident in expense ratios. From transaction to holding costs to ETF composition, the total costs of ETFs can be a significant drag on returns, which are coming under the microscope, as are the robo-advisors that typically use them.

As the Fed raises rates and suggests it may start shrinking its balance sheet later this year, managing duration risk becomes much less straight forward.

President Zuma's sacking of his market-friendly finance minister amid a broader cabinet reshuffle has spooked markets, creating attractive entry points for longer-term, valuation sensitive investors.

It is St. Patrick’s Day and I am thinking of my grandmother, who used to make the most horrific corned beef and cabbage every Wednesday night; the corned beef had a metallic sheen. So when I am offered corned beef and cabbage on this day I always shudder and decline.

The Fed’s signals that rate increases could soon come seem to fall on deaf ears. U.S. stocks continue to climb as bond yields decline. Although recent data reflect accelerating economic growth, which is necessary to justify frothy valuations, structural challenges and unclear policy outcomes remain. Caveat emptor.

Why worry about paying a premium for bonds? While cash flows may differ, income from premium and par bonds is equivalent, all other variables being equal. Purchase premiums aren’t lost when the bonds mature.

Demonetization, "Operation Clean Money," central bank surprises, and a populist budget that also exhibits fiscal consolidation? Negative foreign investor equity flows, and India's stock market is up?

Market gains since Trump’s election are starting to look fragile, undercut by friction between the U.S. president’s pro-growth reform proposals and his mercantilist and anti-immigration stances.

While bank loans offer protection from rising risk-free rates, they’re callable and frequently redeemed by the issuer in an improving credit environment, when they generally underperform high-yield bonds. But in a deteriorating environment, they drop about the same as high-yield bonds. They can overcome that negative skew, but only rarely.

A painful selloff in the muni bond market represents a partial correction from overvalued levels, paving the way for more attractively priced bonds. A laddered bond strategy can also go a long way to mitigate the pain.

Oil prices jumped sharply in the wake of OPEC’s pact to cut production, but the market might wait to see implementation of the output reduction. OPEC’s quota compliance history and current market supply and demand dynamics don’t necessarily support sharp climbs in oil prices.

Prime Minister Modi’s politically risky push to tamp down India’s outsized underground economy by pulling the largest rupee bills out of circulation is causing real disruption among consumers and businesses.

Emerging market assets have come under heavy pressure, particularly in Mexico and China, which have also sagged under the specter of rising U.S. trade protectionism. But rather than focus on Trump’s campaign talk, watch his actions.

Over the past couple of years, we added some high-quality floating-rate securities to the portfolios, believing the Federal Reserve would increase short-end rates at some point as both real gross domestic product (GDP) growth and inflation were low but notably positive.

It was an interesting quarter in the fixed income markets and the municipal markets in particular, ranging from "Brexit" in the United Kingdom to the Federal Reserve Board (Fed) threatening to raise the Fed funds rate yet again (sounding like "Chicken Little").

What’s driving developing country stocks? What’s needed to support their current valuation multiples?

Colombian voters narrowly defeated a government-sponsored peace accord with FARC insurgents, surprising pollsters and dashing President Juan Manuel Santos’ desire to end the five-decade conflict and cash in on a peace dividend.