The $23.3 billion Thornburg Investment Income Builder fund sits at a sweet spot for today's investor: a dividend-focused strategy with a global bent.
A 28.2% one-year return definitely turns heads, and Morningstar puts Income Builder in the top 1% of its global moderately aggressive allocation category, which is up 14.5%. Its strong showing is no fluke. The fund sits in the top 1% of its category, with a 10-year annualized return of 12.1%, well above peers' long-term return of 9.2%, net of its annual 1.15% fee. The 4.5% front load is waived at most major platforms, including Charles Schwab and Fidelity.
Brian McMahon has managed the portfolio since the fund's 2002 inception, keeping a sharp focus on income with a flexible approach. That allows McMahon and his co-managers, Matt Burdett and Christian Hoffmann, to go anywhere in the world, including bond markets, to find income, with the goal of providing a yield double that of the MSCI World index. Income Builder's trailing 12-month yield is 3.4%, not including long-term capital gains, compared with the index's 1.49% yield.
Unlike traditional 60% stock/40% bond portfolios, in which the fixed-income sleeve is a static allocation, Income Builder adds bonds only when the managers believe they offer equity-like returns.
"We're looking for companies that have an ability and willingness to pay dividends on the equity side and then go into fixed income when that return is comparable," Burdett says.
The team wants companies that pay solid dividends that can grow over time, but they don't use screens to filter names. They seek durable businesses with strong and stable cash generation and little leverage, such as No. 1 holding Taiwan Semiconductor Manufacturing. For each company, they employ a sensitivity analysis, or a "what if" analysis on key metrics for each business-earnings, free cash flow, or earnings before interest, taxes, depreciation, and amortization-to test how results shift if assumptions change.
"It's a pretty nerdy investment strategy," McMahon says.
With a low 28% portfolio turnover, the managers spend much of their time monitoring and maintaining holdings, talking to management to understand their three-to-five-year business plans, checking out competitors, and sticking with teams that execute well and have room to pay cash dividends to shareholders to benefit from compounding.
One longtime holding whose dividends have taken off is No. 4 holding Samsung Electronics. It has a net cash equivalent to 11% of its market capitalization, McMahon says. Last year the company paid out 1,668 won ($1.23) in dividends per share. This year it has already paid out about 1,300 won and is forecast to pay a historic windfall of almost 4,600 won in the third quarter. McMahon says there may be another dividend in December, and he expects it to keep growing. Samsung offers capital appreciation and portfolio diversification to Income Builder's overweights in financial services and communications services.
The managers are cautious about an artificial-intelligence bubble, but McMahon considers his top tech holdings such as Taiwan Semi, Samsung, and No. 9 holding Broadcom to be protected since they provide components foundational to AI's existence.
Earlier this year, Income Builder bought Kimberly-Clark, now the No. 10 holding and trading around $90, attracted by its 5% dividend yield. Investor skepticism about its acquisition of Kenvue, the maker of Tylenol and other brands, weighs on the share price, but the team views Kimberly-Clark as a valuation opportunity not only for its yield but also because they believe it can continue to generate cash and pay its dividend, along with the potential for earnings growth and multiple expansion.
No. 6 holding Citigroup had underperformed peers, but moves by CEO Jane Fraser to streamline the business have helped shares start to appreciate, McMahon says. The current dividend yield is 1.93%, and the five-year dividend yield growth rate is around 3.9%. He suggests dividend growth could potentially rise to the high-single digits or even double digits, citing strong earnings versus the current dividend outlay, ongoing share buybacks, and loosening capital requirements.
No. 2 holding Orange, the largest telecommunications operator in France and Spain, could benefit from the AI data spend, Burdett says. Much of its fiberoptic network has been built, and that has been a drag on share prices since Elon Musk's SpaceX-which includes competitor Starlink-went public. Yet Burdett suggests increased data traffic from AI will go through assets like Orange's network.
For the first half of the year, Orange reported 2.2 billion euros ($2.53 billion) in organic free cash flow, and the company projects that to be EUR4.3 billion for the full year. CEO Christel Heydemann is targeting the dividend to go to 85 cents a share from 79 cents in the next two years, Burdett says.
Income Builder owns a few European utilities, including No. 13 holding Enel. The Italian utility's core business is domestic, but it also controls Endesa in Spain, and has assets in Latin America and renewable energy generation and storage in the U.S. and Canada. More renewable energy added to the electricity grid means greater potential for power price volatility; an integrated utility like Enel can take advantage of those fluctuations, Burdett says. It has a current dividend yield around 5%, and the managers expect that can grow to the mid-to-high single digits, in line with earnings growth.
Looking ahead, McMahon says, he and his team are watching bond market volatility to take advantage of any potential credit-spread widening or if real yields move higher. Their current fixed-income position is about 5%, but they have about 7% in cash-some $1.8 billion-ready to deploy wherever they find opportunities.
Consensus corporate earnings expectations for 2026 and 2027 are high, McMahon says. The potential threats to a sunny outlook are bond-market volatility spilling over to equities and possible ramifications from the continuing fighting in between Iran and the U.S.
"We have no idea how the Iran war is going to turn out," he says. "You have to pay attention to it, and we are paying attention to it."
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