The Thornburg Developing World Fund's performance in the first quarter of 2026 showcased its strategic acumen, delivering substantial returns amidst a dynamic global economic landscape. Geopolitical events, particularly the escalation of conflict in the Middle East during late February, significantly reshaped market trends, leading to a notable broadening of global equity leadership. Despite these challenges, emerging markets demonstrated resilience, outperforming their U.S. and developed non-U.S. counterparts. The fund's success can be attributed to its disciplined investment approach and its ability to adapt to evolving market conditions, focusing on sectors poised for growth and maintaining a vigilant eye on macro-economic shifts.

Looking ahead, the fund managers maintain a constructive outlook on emerging market equities. They highlight attractive relative valuations, improving market breadth, and several structural tailwinds that are expected to drive future growth. These include the increasing adoption of technology, robust domestic consumption patterns within emerging economies, and ongoing realignments in global supply chains. The fund's strategy emphasizes increasing portfolio concentration in high-quality businesses with clear earnings visibility and idiosyncratic growth drivers, while also tightening risk parameters to navigate potential volatility. This forward-looking approach aims to capitalize on long-term trends and mitigate short-term risks, ensuring sustained performance for its investors.

Exceptional Performance Amidst Market Shifts

In the first quarter of 2026, the Thornburg Developing World Fund (I share class) delivered a robust return of 2.27%, significantly outpacing the MSCI Emerging Markets Index by 244 basis points. This period was marked by a notable shift in global market dynamics, influenced heavily by the geopolitical landscape. Emerging markets collectively posted a return of -0.2%, yet this performance was superior to both U.S. and other developed non-U.S. equity markets. The quarter's sector-level performance was highly varied, with economically sensitive and technology-oriented sectors exhibiting strong leadership. This divergence underscored the importance of selective investment and agile portfolio management in capturing alpha opportunities.

The initial phase of the quarter witnessed a substantial broadening of leadership across global equities, signaling a potential shift from the narrow market rallies seen in previous periods. However, the latter part of February brought a critical turning point with the intensification of the U.S.'s conflict with Iran. This geopolitical event introduced new uncertainties and reconfigured investor sentiment, leading to a reallocation of capital within and across different asset classes. Despite these macro-level disturbances, the Thornburg fund demonstrated its ability to navigate complex market conditions effectively, leveraging its expertise in emerging markets to generate superior risk-adjusted returns. The fund's strategic positioning and stock selection proved crucial in outperforming the benchmark, highlighting the benefits of active management in a volatile environment.

Strategic Adjustments and Future Outlook

The Thornburg Developing World Fund is proactively adjusting its portfolio strategy to enhance resilience and capitalize on future opportunities amidst ongoing market volatility. The fund plans to increase its portfolio concentration to 40-50 holdings, focusing on businesses that demonstrate high quality, clear earnings visibility, and unique growth drivers. This approach aims to reduce exposure to broader market fluctuations by emphasizing companies with strong fundamentals and sustainable competitive advantages. Additionally, the fund is implementing tighter risk parameters to safeguard against unexpected market downturns and ensure a more controlled investment exposure, reflecting a cautious yet opportunistic stance in the current global climate.

The fund managers remain optimistic about the prospects for emerging market equities. Their positive outlook is grounded in several compelling factors, including the attractive relative valuations of emerging market assets compared to developed markets, which present significant upside potential. Furthermore, there is an observable improvement in market breadth, indicating a healthier and more widespread participation in market rallies. Key structural tailwinds such as accelerated technology adoption, burgeoning domestic consumption within emerging economies, and strategic realignments in global supply chains are expected to provide long-term growth impetus. These drivers collectively support a constructive view, positioning the fund to benefit from these secular trends and continue delivering strong performance for its investors.