The fund was "never a very sexy idea," said
Still, since 1984 that fund reliably has churned out interest payments in good times and bad while minimizing risk and by avoiding the price swings that make a more exciting-looking net asset value graph. It's a performance that earned the fund a 2014 Lipper Award, one of five Thornburg funds to win Lipper Awards this year.
The fund is laddered, which means the maturities of the bonds are staggered. Every year, some bonds mature, and the principal is reinvested in bonds with longer maturities.
"You look really smart when rates go down," Thornburg said, because the value of the bonds increases when rates decline. "You look really stupid when rates go up. The fact is, over a long period of time, you look good because this system really works. You don't have to outguess the market. You don't have to pretend to be
An investment management firm like Thornburg makes much of its money from fees it charges for its expertise in choosing investments. Most of its marketing involves convincing financial advisers and brokers to convince their clients to buy Thornburg funds.
McMahon recalls one broker they approached told them the
In good times, investors rush into the markets; in bad times, they abandon them in a panic.
"Our position has always been neither extreme," McMahon said. "Hang in there. Stay invested, but stay sensibly invested."
Thornburg talks a mile a minute. McMahon speaks quietly and deliberately. Neither man says much about himself unless asked.
Cream of the crop
Many of their portfolio managers and financial analysts hold degrees from the world's top business schools, and many of them are chartered financial analysts.
"We have a lot of people who could be superstars, but they aren't," Thornburg said. "That's not how it works. It's not a superstar system."
"We are very much an investment-centric versus a marketing-centric firm," said director of marketing
"We are known in the industry for not being marketing driven," said Chief Operating Officer
"Brian and Garrett and the people in this company have done a great job in building a company focused on what their expertise is."
Fidelity, for example, offers almost 200 mutual funds. Thornburg has 18, and several of those are variations on a theme.
McMahon said new funds often don't start so much as they evolve.
"Most of our ideas just kind of percolate up," he said.
Thornburg offered only debt-based funds from its inception in 1982. However, analysts and portfolio managers were identifying great values in equities and, starting in 1990, would occasionally buy some.
Thornburg said he and his colleagues facetiously called their first equity holdings "the benign neglect fund, because we didn't do something until there was something to invest in, which is actually a really good strategy. If you don't have a better idea, don't do anything."
They were getting 27 percent annual returns on their equity investments but still didn't offer an equity mutual fund.
By 1995, Thornburg and McMahon reasoned that since they were buying equities anyway and were getting good results, it probably was time to start a fund. They placed a small help-wanted ad for an equity fund manager in
Thornburg couldn't believe a guy like Fries could be happy in a 15-person shop based at the foot of the Sangre de Cristos, but Fries stopped by to visit after a ski trip to
Fries launched the
Ever since 1995, "all the equity funds have been sort of an organic growth" from the
Soon the international fund led to an emerging markets fund. Equity portfolio managers discovered they were buying growth stocks for the value funds, so they spun off a growth fund.
"The biggest single step was the decision to do an equity fund with Bill," Thornburg said.
Equities now account for 75 percent of the firm's funds under management.
"That's three quarters of the company that wouldn't have existed if we hadn't made that one decision," he said.
He grew up in
The banks wanted better returns than they could get with those tax-advantaged loans, and they didn't need the tax-advantaged income, but they couldn't not lend or they would lose competitive position.
He started it in
He did his first deal with McMahon, who was a young corporate banker with
McMahon figured if the product worked for
"I was impressed," Thornburg said. "He was smart enough to say, 'If this works for us, it works for other banks, and I can get paid to show these guys how to do it.' I didn't have any other bankers figure that one out. He was this young corporate finance guy at
Thornburg is a minority owner of the firm these days and is chairman of its board. The rest of the company is owned by more than 30 employees, who are known as managing directors.
Many Thornburg funds regularly outperform their benchmarks, but the actively managed fund industry is always competing against index funds and exchange-traded funds because those funds charge lower fees and can get the same or better results as some actively managed funds.
"There are always replacement products being built for the market you're in," Doorley said. "Traditional asset management is probably not going to go away. The big question is, what role will ETFs or passive (investment strategies like index funds) versus active management play? We're looking at that."
What the next Thornburg fund will be is anyone's guess, though McMahon expects it will percolate up from something the firm already knows how to do well.
"Most of us here spend most of our time trying to deliver on what people have already hired us to do," he said.
"We don't want to be all things to all people," Doorley said. "We want to be thoughtful about what we do. We want people in the marketplace to understand why we do what we do."
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