Thornburg Fund Celebrates 30-Year Milestone

With just $12 million under management in 1984, the Thornburg Limited Term Municipal Fund was a fledgling portfolio that barely generated enough revenue to make ends meet.

Today, the simple approach of laddering short-term, high-quality municipal bonds, along with its consistent performance, strategies, and portfolio management, have helped the fund grow to nearly $7 billion as Thornburg Investment Management this week celebrates the 30th anniversary of its flagship product.

The Limited Term portfolio was the company's first-ever bond fund created by Thornburg founder and chairman Garrett Thornburg and is now one of seven municipal funds among 16 in Thornburg's mutual fund family.

"Despite all the ups and downs and the volatility that's gone on, we performed well even in the bad years," said Josh Gonze, co-portfolio manager of the fund with Chris Ryon, in an interview Tuesday.

During the 2008 credit crisis, for example, he said the institutional shares of the Limited Term Municipal Fund generated a 1.34% total return.

"In a year when many bond funds got their heads handed to them we were able to show consistent performance," Gonze said. "We never changed the strategy and stuck to our knitting consistently."

Today, the fund has grown to $6.8 billion in assets and its A shares have an average annual return of 5.23% since inception as of June 30, the Santa Fe, N.M.-based firm said in a press release on Monday.

Gonze said the fund grew slowly over time, and for three decades, has kept the same steady strategy - using a 1 to 10-year laddered portfolio that gleans value from the investment-grade segment of the municipal market, provides a high level of current income and preservation of capital, while increasing liquidity and minimizing interest rate risk.

"It's been consistent in two things advisors look for - avoiding any mistakes and it's consistently performed well," Gonze said. "The product has had a fairly transparent strategy and old-fashioned discipline."

He said the fund's holdings have average maturities of less than five years and their average credit quality ranges from high single A to low double-A in nature. The fund has a duration of 3.3 years, and often outperforms the Merrill Lynch 1-10-year Municipal Index that it uses as a benchmark, according to Gonze.

"The investment success is attributed to avoiding troubled sectors, such as tobacco and Puerto Rico, and a high degree of diversification," in terms of sector, geography, and position size, he said.

"Advisors who began with us 10 or 20 years ago have grown their businesses and they have built larger positions with us," Gonze said.

The fund has had very little turnover, with only four portfolio managers in 30 years, which Gonze said contributed to its success and longevity.

Its first manager was Brian McMahon, who is now the current chief executive officer and chief investment officer. George Strickland managed the fund prior to his retirement two years ago.

"The consistent performance, strategy, and portfolio management all adds up to success in the market," Gonze said.

For instance, the fund's institutional share class in March was named the Best Short-Intermediate Debt Fund by Lipper Inc. among 29 funds within the category for the 10-year period ended Oct. 30, 2013, the firm said in its release.

The fund carries a four out of five star overall rating from Morningstar Inc. among 163 municipal national short funds based on risk-adjusted returns.

When it was first rated in 1987 by Morningstar it earned five stars, according to the release.

Going forward, he said the firm doesn't plan to change the fund's approach.

"The strategy has worked and we are not going to change it," Gonze said. "Our clients want us to stick to our discipline and we plan to do that."

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