Q:  What is the history of the company and the fund? A : Thornburg Investment Management is a privately held investment management company based in Santa Fe, New Mexico. Founded in 1982, the firm manages seven equity funds, nine bond funds and separate portfolios for select institutions and individuals. The International Growth Fund was incepted in February 2007. We have always taken a global generalist and bottom-up approach to our stock selection. We were already running a domestic growth fund, but we were finding more international investment ideas than we could put into a domestic portfolio. We recognized the international investing market in the United States was an interesting growing place to be. We felt we could be competitive in the United States and decided to build upon our domestic growth fund and launch an international one. The fund invests in a selection of quality growth stocks, located primarily outside the U.S., that we believe will have growing revenues and earnings. We differ from our peers because we have a concentrated portfolio, generally between 45 and 55 holdings. We are very stock-picking oriented. We are benchmark agnostic and want to own the best stocks we can find but still be diversified across geographies and sectors. Q:  What is your investment philosophy? A : Our philosophy is to generate consistent returns by purchasing promising growth companies with sound business fundamentals at a discount to their long-term value. We want to own great businesses that are growing fast and are reasonably valued. We start from a broad universe and screen down to the individual investment ideas. Then we do deep fundamental research on each idea. We look for sustainable competitive advantages. We like to see protection around their business, good management history, and secular growth drivers. We want to see these growth characteristics that signify high quality. As growth investors we have high hurdles for growth before we are interested in owning something. That will generally peak, for revenue, at least 10% to 15% and higher. In terms of valuation, we are willing to pay a higher valuation for a very high-quality business that is growing fast and has a promising future. We are very careful about not overpaying. When you invest in growth companies there can be an element of momentum that gets into the stocks and we try to recognize that and have valuation sensitivity around that. Q:  What is your investment strategy and process? A : This strategy is a bottom-up, focused, flexible, fundamentally driven portfolio of international growth stocks, with the ability to invest in equities up and down the capitalization spectrum. We start with the broad equity universe. We run broad screens across every geography and sector, screening for growth, margin improvement, and valuation characteristics. There is not one black box screen that is the answer. We generally tweak and run different screens in an attempt to vary our output and remain flexible in finding opportunities. We run the screens as a team and then go through them individually. We come back together and talk about the three to five stocks that jumped out sat us. As a group, we whittle down our prospective stocks and prioritize them. We have a brief discussion of stocks that stand out to see if anyone is familiar with them, or their competitors, and that can move stocks up and down the priority list. Once we have a stock that has passed the initial phase, we start the fundamental research process. That involves broker research, including going through the filings and building a historical model into our proprietary template, for the income statement, balance sheet, and cash flow statement. We plug in any metrics that are relevant to that business and build out a forward model. We end up with an investment package that we discuss as a team and go over the positives and negatives, the investment thesis, the sell thesis, the price targets, the downside target. We reach a conclusion as to whether that individual stock can improve our portfolio. One example is Asos plc, the online fashion retailer in the U.K. We came across them a few years ago when they were not very well known. What attracted us was their revenue was already vast and they were profitable. They have their own brands but there are also third party items on their website. It is a nice model that generates good cash flow. After the screen we move to the next step where one of us builds a historic and future model. One of the reasons we like Asos is the secular growth drivers. There is a movement from offline to online retail. Every year online retailing grows about 12%; Asos is gaining a lot of market share and growing a lot faster. They are also expanding to other markets, such as Australia, the U.S., Russia, and China. During the process we look at a number of peer companies around the world. We own a few of those similar companies. It is hard to compare model against model. Globally the valuations are hard to compare because often in the early stages they are losing money and do not get profitable until they are large enough and have enough scale. One metric we like is gross profit divided by enterprise value. That takes into account the differences of how the sales are recognized. It also takes into account if they are profitable or not and if they have debt or not. Another example we own in this portfolio is Priceline.com Inc. We have owned the stock on and off for a number of years in both of our portfolios. We previously owned the stock in our domestic portfolio. A few years ago Priceline made a transformational acquisition when they acquired a European business called Booking.com, launching their European business. They grew that very fast and got an advantage on Expedia in that market, which was a lot less penetrated and structured differently than the U.S. The U.S. market is structured more around large chains such as Marriot and Hilton. In Europe it is much more fragmented around family run hotels. They made a big and smart investment to sign up these small hotels and have an advantage in their hotel inventory in Europe. When you look at Priceline today, 85% of their profit is coming from outside of the U.S. When you have stocks with expectations built into them and then it becomes apparent it is not playing out as we thought, we sell quickly to limit losses and preserve the capital. We always reserve the right to revisit them later. It is not unusual for us to own the same stock multiple times. We have an upside and a downside target. The downside is, if things do not play out, how bad can it be? The upside is, if our investment works like we think, where should the stock trade? If the stock moves up, there is less upside and more downside and we tend to like it a little less and we want to trim it. When it goes down, we tend to want to add. This will smooth out some of the volatility. Q:  What is your research process? A : It is a bottom-up fundamental research process. Thornburg is unique insofar as everyone on the equity team is working as a generalist. We are not tied into specific sectors or geographies. There is a lot of collaboration. We examine valuation and how that looks relative to peers, relative to its history, and relative to other opportunities across the market. We meet company management at their headquarters several times and stay on top of the business to make sure it is playing out as our investment thesis projected. We have about 25 people across the equity team, including portfolio managers and analysts. There are four of us on the growth team, and we get a lot of help from the broader equity team. Q:  What is your portfolio construction process? A : Our benchmark is the MSCI All-Cap World Ex-U.S. Growth. A diversification process used across the firm is the basket structure. We organize our portfolio into three baskets. These are growth industry leaders, consistent growth companies, and emerging growth companies. Growth industry leaders are companies that are big and dominant in their sectors or markets. For example, AmBev, which is a beverage company that has about 85% market share in Brazil. They are a big, dominant business that is still growing. We have about one third of the portfolio in those kinds of stocks. Consistent growth companies tend to have recurring, stable, subscription revenue. An example is Kabel Deutschland. They are a cable and Internet provider in Germany. We like to have a third of the portfolio in these kinds of businesses. We have found that more stable names give us protection in down markets. Emerging growth companies are the earlier stage, more aggressive stocks that tend to outperform over longer periods, but are going to be more volatile, such as Asos. Having these three baskets gives us an extra level of diversification and helps dampen the volatility a bit more in the portfolio. We build the portfolio on a stock-by-stock basis. If we like the valuation and think we are getting a great stock, we will buy a full position. In other names we might like the story but not the valuation so we may wait a couple of months, or buy a small position and wait It depends on what the stock is, the market conditions, and the valuation. In terms of our industry group diversification, we are a diversified mutual fund. We follow those rules, which are pretty broad. Other than that we do not have sector limitations so we are not targeting to be a certain plus or minus in each sector or industry. At the same time we pay a lot of attention to the diversification across the fund. Paying attention to our baskets, sector, industry, and geography weights help us do that. We focus on the fundamentals of the company to make sure they are diversified. The best time to sell is when we hit a price target. Although we like to be long-term shareholders where we can, we do sell on price target. We also sell when we have a better idea coming into the portfolio that we need to make room for. We feel regeneration is an important part of our process. Q:  How do you define and manage risk? A : We ensure we are making good choices by buying good companies right at the beginning based on sound fundamental research. Secondly, we try to avoid permanent and impaired capital. If we buy a business we like and the stock goes down a bit it gives us an opportunity to add, and then it comes back and we have not impaired capital. If you buy a bad business and it goes down and is never coming back, then we feel like we have impaired capital. We tend to have a more forward-looking approach. We look for hidden correlations in the portfolio. For example, if we have some online retailers, are they going to all perform together at certain times? We want to make sure we manage them as a group and not let the exposure to that whole group increase too much. We also focus on concentration of risk, which does not necessarily translate through in sector exposure and geography exposure. You can have a lot of China risk in a portfolio, but on the surface do not have a lot of direct Chinese exposure. You may own Australian or Brazilian companies that are dependent on the Chinese economy for their growth. So, we try to focus on where our risk is at and keep that diversified. It always comes back to making good individual stock selections. We make sure we are being intellectually honest, doing our fundamental research and always adhering to those three principles: is it a good business, does it have good growth characteristics and is it reasonably valued? If we are consistent in doing that on a stock-by-stock basis, we believe that is good risk control.