Today’s profile in Barron’s features the Thornburg Global Opportunities Fund (THOAX; Class A shares). This $2.5 billion fund has a 4.5% maximum sales charge, 1.32% actual operating expenses (after a temporary fee waiver), and 45% turnover. According to the article

The fund is notable not just for its category-leading 11.6% annual returns over the past five years, but also for its approach. It is extremely flexible—it can invest in any size company in any market—and extremely focused.

One of the accessible implementations of the fund’s benchmark is the iShares MSCI ACWI ETF (ACWI). Since the ETF’s inception in March 2008, the fund returned more than the ETF in about 98% of all rolling 36-month periods, 87% of 24-month periods and 77% of 12-month periods. The mean and median of the fund’s outperformance in a rolling 36-month period was 17.1% and 12.8%, respectively.

Comparing returns against a single static benchmark does not adjust for the fund’s risk. To accomplish the latter, let’s look into the performance of Thornburg Global Opportunities through the lens of Alpholio™’s patented methodology. One variant of this methodology constructs a custom reference portfolio of ETFs with a fixed membership but variable weights that most closely tracks returns of an analyzed fund. The difference between the returns of the fund and those of its reference portfolio is the RealAlpha™ (to learn more about this and other performance measures, please visit our FAQ). Here is the resulting chart of the cumulative RealAlpha™ since the fund’s inception:

Cumulative RealAlpha™ for Thornburg Global Opportunities Fund (THOAX)

Since inception, the fund produced about 3.6% of annualized discounted cumulative RealAlpha™. However, most of this value was added since mid-2013. Of note was an approximately 10% drop in the cumulative RealAlpha™ from August to September 2015. This was a result of a dramatic price decline of one of its main holdings, which underscores the concentrated nature of the fund. At 20.3%, the fund’s standard deviation was about 3% higher than that of its reference ETF portfolio. The fund’s RealBeta™ was around 1.07.

The following chart illustrates changes of ETF weights in the reference portfolio over the same analysis period:

Reference Weights for Thornburg Global Opportunities Fund (THOAX)

The fund had major equivalent positions in the iShares Morningstar Mid-Cap Growth ETF (JKH; average weight of 21.8%), iShares MSCI Switzerland Capped ETF (EWL; 12.7%), Vanguard Financials ETF (VFH; 12.5%), iShares MSCI Canada ETF (EWC; 12.2%), iShares MSCI Malaysia ETF (EWM; 10.3%), and iShares MSCI Japan ETF (EWJ; 8.6%). The Other component in the chart collectively represents additional six ETFs with smaller average weights.

Since inception, the Thornburg Global Opportunities Fund added a significant amount of value of a risk-adjusted basis but at the expense of an elevated volatility due to concentrated holdings. Currently, the fund’s top-ten positions account for 48% of its assets. At present, the fund is approximately evenly invested in the U.S. and foreign equities, which should be taken into account in the construction of the overall investment portfolio. The fund’s relatively small historical distributions indicate that despite active management it may still be a good fit for taxable accounts. The substantial front load detracts from the fund’s appeal.

To learn more about the Thornburg Global Opportunities and other mutual funds, please register on our website.

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