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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
Buyside Digest is not affiliated with, and does not endorse, Thornburg Small_Mid Cap Core Fund. This analysis is provided for institutional research purposes only and is not investment advice.
"Thornburg Small/Mid Cap Core Fund fell 11.38% in Q1 2025, underperforming by 388 basis points as AI trade unwound and policy uncertainty drove risk-off sentiment. Managers reduced exposure to volatile growth positions, focusing on profitable companies with strong balance sheets."
Thornburg Small/Mid Cap Core Fund returned -11.38% in Q1 2025, underperforming the Russell 2500 Index by 388 basis points amid substantial market volatility. The quarter was marked by an unwind of the AI and momentum trade following DeepSeek's emergence, which hit the Magnificent Seven stocks particularly hard with a 16% decline. U.S. trade and economic policy uncertainty drove risk-off sentiment, with small and mid-cap segments reacting sensitively to prospects of fewer Fed rate cuts in 2025. Growing recession concerns emerged from multiple headwinds including tariff uncertainty, government spending cuts, declining consumer confidence, and weakening business momentum. Goldman Sachs increased its recession forecast to 35%. The managers incrementally reduced exposure to higher-volatility Emerging Franchise positions while maintaining focus on companies with earnings visibility and strong balance sheets. Stock selection in information technology and industrials detracted from performance, while an overweight in utilities and energy stock selection contributed positively. The team maintains a defensive posture until policy uncertainty diminishes or Fed rate cuts materialize.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
The managers maintain high confidence in their long-term, three-basket compounding strategy despite recent underperformance.
Growth Outlook
The commentary highlights rising risks of a U.S. recession or stagflation, policy and tariff uncertainties, and slowing economic momentum.
Risk Appetite
The fund has shifted toward a more defensive positioning, reducing exposure to higher-volatility Emerging Franchise stocks.
Capital Deployment
Capital is modestly being reallocated away from higher-beta growth stocks into defensive quality, with cash kept at a low 1.2%.
Forward Guidance
Management anticipates a challenging economic picture with sustained market volatility and increased recession probability.
Language Signal
The tone reflects considerable uncertainty regarding macroeconomic headwinds, interest rate cuts, and trade policy.
Perceived Risk
Risk is perceived to be high due to macroeconomic headwinds, potential stagflation, government spending cuts, and tariff concerns.
Opportunity Density
The managers view valuations in several small and mid-cap market segments as stretched, narrowing attractive investment opportunities.
Time Horizon
The commentary emphasizes a long-term investment horizon focused on fundamental compounding over time.
