U.S. management company Thornburg Investment Management (TIM) defines its management style as unique. Although this claim might not be very original in such a competitive industry, Jason Brady, Portfolio Manager and Head of the Global Fixed Income team, as well as the firm’s CEO for just over a year, states this with conviction. "I think the best example of the essence of the company's philosophy is that I have been appointed to this position. What makes us strong is the confidence we have in what we do and in doing what we say," says Brady to exemplify the strength of the company and its commitment to select those people and assets that contribute confidence to grow the global value of their firm and their funds.
After ten years in the company, Brady took up this position in January 2016 with a continuity approach. "Nothing will change in the way we manage our clients’ assets, because we have demonstrated that our strategy brings value," he says. The firm, established in 1982 and based in Santa Fe (New Mexico), mainly offers its services to HNWI, but also to banking institutions, investment companies, and pension plans, amongst others. At present, about 95% of TIM's assets are in the hands of the retail segment, and it has approximately US$50 billion of assets under management.
The company's investment culture is based on generating confidence, which Brady considers a cross-cutting aspect for the management of any of its products: eight equity funds, eleven fixed income funds and a fund in the alternative assets class. One of the firm’s requirements is that the portfolio managers themselves fully understand the global scope of their job, and that they become shareholders of the asset management company. Additionally, the portfolio managers must invest in the funds they manage. "We work in an open room with 39 investment professionals where collaboration is paramount. It is impossible for any manager or analyst to know everything, but they can share what they know and get better results," says Brady.
In this regard, Brady argues that there are two options to build a portfolio, either to use a very mechanical process or to spend a lot of time studying different opportunities and investing in different markets; to him, the key is to maximize the work of each of its portfolio managers and analysts and to promote collaboration and communication. "Our strategy is to maximize our team, and in this respect, the collaboration and sharing of all information and experience explains our success," he says.
That is, if one of their portfolio managers is focused on a particular market, what he learns from it, or the opportunities he identifies, can be taken advantage of by another team member who manages a different fund. "Bringing that collaboration together makes the process easier and differentiates us from other managers," Brady says, as CEO, he is committed to guiding his team so they do not lose focus, and to listen to whatever is needed.
The Importance of Selection
Regarding their strategy, the CEO and fund manager points out that they are looking for opportunities in any geography, but that they only select a small number of securities - averaging 60 positions in each equity portfolio – in which to invest. The way to identify such select names is none other than giving special relevance to the analysis, preparing reports and traveling to meet the companies. His method of work aims to achieve a great individual dominance of each of the elements of the portfolio and its environment. For Brady, the goal is to continue constructing more specific portfolios in the markets they are in right now, without losing sight of others that they consider interesting, such as Europe or Latin America.
"We prefer a portfolio with a lower number of securities than trying to encompass a large number. This allows us to know more about the reality of the environment of each asset, moving away from the more macro perceptions of the country or sector where it is. In addition, it allows a better understanding of the portfolio’s behavior and risk," he explains. The firm argues that this is the reason why its "unique" approach marks a considerable difference when compared to other managers with a more quantitative strategy.
Internationalization of Thornburg’s strategies: UCITS fund range
Vincent Leon, who joined the firm in June last year, heads the business development efforts of the Thornburg UCITS range for the non-resident sector in the United States and Latin America.
For now, the firm has registered five of its equity funds in Ireland and is working to register new products. According to Brady the reason is none other than the complexity of adapting products to regulation in the most precise way. Thornburg has an office in the United Kingdom, from where it aims to grow in size and establish relationships with European and Middle Eastern investors. In addition to its UCITS range, the management company has a number of separate mandates for international clients.
In 2012, the firm began to address non-US investors. For the non-resident US market, Thornburg has leveraged its relationships with major domestic broker-dealers who also operate offshore. "Another key to focus on this segment, is that we already have a strong relationship with investors in the United States, and they know our asset management style. We have been evaluating which platforms to develop, although sometimes this process is not as simple as it should be. I believe that the products that we have in America can be potentially attractive to Europeans and Latin Americans," Brady explains, adding that the geographic scope is not an obstacle since, ultimately, investment needs are similar throughout the world.
Another notable aspect of the market is that during the last few quarters there has been a great shift from active management products to passive management, or ETFs. Brady explains that it has partly been due to the training of broker-dealers in the US for compliance with the DOL fiduciary standard – although its approval is less and less likely– but another important part is due to the fact that in recent years the market has been very accommodating, rising almost uninterruptedly, especially with regard to the S&P500.
Many investors have wondered whether it is worth paying an active manager if he has not been able to beat the index significantly. "In the 1999-2000 period, we experienced a similar situation. The market went up unceasingly, and everyone thought they were able to manage their portfolios without the help of a professional. Then came the big correction, and that was the time for the active managers to stand tall and prove their worth," says Brady.
Thornburg’s CEO believes that the current situation in the US market does not differ much from that of those years, in terms of valuation. "If you look at the S&P500 as of today you see that the top five components of the index have a larger market capitalization than the smaller 250. This does not look good for an index-focused investment approach," he says.
The Trump Effect
Thornburg Investment Management's 35 years of experience in the asset management sector, has led them to coexist and deal with all kinds of crises and recessions. Now, Brady is faced with the challenge of leading the management team surrounded by various ideas about the Trump effect in the markets. "There is a lot of expectation about his possible measures to lower taxes and boost infrastructure spending, but one thing is what was said during the electoral campaign and reality is another. I think everything will be much more static," he says. In this regard, they are somewhat more concerned about the evolution of inflation in the country and how it will affect investments.
In this context, the company continues to defend its investment philosophy based on fundamental analysis with a long-term horizon, which is to say from 18 months to several years, and being flexible in order to improve returns. As Brady argues, what makes them unique is their collaborative culture, whereby their managers and analysts do not specialize in sectors or geographies, but all must understand and share information about the fundamentals of border markets, sectors, and industries.