Brian McMahon is the chief executive officer and chief investment officer for Thornburg Investment Management, where he is responsible for the company’s overall investment activity. Brian is also a co-portfolio manager for the $11.7 billion Thornburg Investment Income Builder Fund (TIBAX). The fund’s goal is income production, and it is in Morningstar’s World Allocation category. It has outperformed the Morningstar Moderate Target Risk benchmark over the last ten years (10.75% versus 2.88%). Its yield is 6.08%. The A shares have an expense ratio of 1.20%. Data are as of December 28.
I spoke with McMahon on December 27.
Let’s talk first about your overall view of the economy and the market, then how that translates to the construction of the Thornburg Investment Income Builder Fund. In your last commentary, which was for the third quarter of 2012, you wrote that global economic growth was slowing and sovereign debt levels were too high for many developed economies. On the other hand, you said that many emerging markets were benefiting from strong consumer demand and would also benefit from lower commodity prices. Have your views changed since then and what is your overall outlook for 2013?
They haven't really changed. The market has done better in the fourth quarter outside the U.S. than in the U.S., and the S&P 500 index is actually negative in this quarter even though it put in a very strong performance in 2012. The MSCI EAFE index is up more than 6% this quarter. Investor views, as indicated by how people are voting with their funds, are that the global economy will be better than people thought it would be a few months ago. That trend is being led by the emerging markets.
Some positive outcomes may have been associated with money creation in Europe. The ECB has been very, very accommodating – more so than anyone expected – and that has been good for European stocks and the European economy.
What's interesting to me, looking at the year-to-date returns, is that this time last year everybody was assuming that returns in Europe would be terrible, and through this morning they are up 16% in U.S.-dollar or 13.8% in local-currency terms, as indicated by the Euro Stoxx Index. That’s better performance than we have seen in the U.S. That's been a surprise, and it happened in the second half of this year. I don't necessarily look for that to continue. I don't look for the dollar to continue to be as weak as it has been once we get past whatever we are going to do on the fiscal cliff.
But it is clear that the fiscal-cliff debate and debt-ceiling limits are weighing on our economy. Yesterday MasterCard said that spending is up less than 1% year-over-year for the holiday season from the end of October through Christmas Eve. So that's not great.