Vinson Walden On The Thornburg Global Opportunities Fund
August 31, 2015
by Robert Huebscher
Vin Walden is the co-portfolio manager, along with Brian McMahon, of the Thornburg Global Opportunities Fund (THOAX). THOAX sports a terrific record. Within Morningstar’s World Stock category, as of August 4, 2015, it ranked among the top 3% of funds for five years; top 1% for three; top 2% for one year; and top 4% YTD. Both Walden and McMahon have managed the fund since it was introduced in 2006.
I spoke with Vin on August 25. Some of the questions in this interview were submitted by financial advisors who are members of our online community, APViewpoint.
What is the overall structure of the fund and the process that you use for selecting securities? What is unique about your approach?
The structure of the fund is based on three principles.
Number one, it’s globally flexible. For diversification and defensive reasons, as well as for opportunistic and offensive purposes, we use our global flexibility to search for good value and opportunities. We are always diversified in at least 10 countries. We think that is robust geographic diversification. And we opportunistically will consider an investment in smaller markets like Canada or the Netherlands. We have benefited a lot over the years because of that geographic flexibility.
Our second principle is the focus of the portfolio, whereby we hold 30 to 40 equities. We consider this number to be the sweet spot for robust diversification, and still have an impact with our security selection and with our ideas. We don’t want to over-diversify or “de-worsify,” as Peter Lynch called it. With 30 to 40 names, we can keep a close watch on our companies, keep the quality high and improve our “batting average” – the percentage of successful investments.
The third principle is value investing. After many years of experience – and studying market history and successful practitioners over the past 100 years – we have a fervent belief that value investing works. If you buy good assets at low prices, that’s a good starting point for long-term success.
So geographic flexibility, a focused portfolio and a value philosophy are the core principles at a portfolio level of how we structure the fund.
Can you describe the process you use for determining the intrinsic value of securities and the criteria that you use for buying and selling securities based on that intrinsic value?
Our security selection is multifaceted. There are many, many factors that go into it in our assessment of companies. But essentially we do a qualitative assessment of the strength of the business. We combine that with a more quantitative view of the valuation of the business. Our quantitative appraisals are predicated on cash – cash earnings and the outlook for cash profits.
A third element that we employ is thinking about the prospects for changes – catalysts, if you will – that could take place in the company or the industry in a foreseeable time frame. Our investment horizon is generally three to five years. We try to peer into the future and speculate on what could or might happen that would improve the fortunes of our investments.
We combine those factors. We use a proprietary checklist of considerations that we go through to evaluate the quality or strength of the company, the valuation of the company and then the path to success. When we get all those things right, we are very interested in making an investment.
Our checklist considerations have been built over many years. It includes factors such as the governance structure of the company: Who owns the company? Is there a controlling shareholder? Is there a family? What’s the agenda of management and the board over the long term? The competitive landscape is very important; we think about the competitive strength or entrenchment of the company using the framework developed by Michael Porter. It includes simple things like how many competitors does the company have? Over time, is that going to be a bigger or a smaller number? We think about the margin structure of the company and how its income statement could respond to a period of adversity, as well as the impact vis-à-vis its capital structure and balance sheet. Is the balance sheet appropriate given the degree of cyclicality in the business?
We then try to develop a holistic assessment of the business. Ultimately, it comes down to those three elements: the quality of the company, the price of the company and valuation and its path forward, or what we call the “path to success.”