In a significant development for the financial industry, Thornburg Investment Management has entered the exchange-traded fund (ETF) market, joining the ranks of legacy asset managers seeking to adapt to the evolving needs of investors. The Santa Fe-based firm, managing over $45 billion in assets, launched two new ETFs, marking a strategic step in its push to expand into the fast-growing ETF space.
This move highlights a broader industry trend, where traditional asset managers are embracing ETFs to cater to client demand for low-cost, flexible investment options. Here’s a detailed look at Thornburg’s entry into this market and its implications for investors.
Introducing Thornburg’s First ETFs: TXUE and TXUG
Thornburg’s debut ETFs, the Thornburg International Equity ETF (TXUE) and the Thornburg International Growth ETF (TXUG), represent a calculated approach to entering the ETF space. Both funds are actively managed and focus primarily on non-U.S. developed market equities.
Thornburg International Equity ETF (TXUE)
- Seeding and Management: TXUE was seeded with $40 million from a Thornburg client. It is managed by portfolio managers Lei Wang and Matt Burdett, who also manage the Thornburg International Equity mutual fund (TGVIX).
- Portfolio Focus: The ETF is more concentrated than its mutual fund counterpart and excludes emerging market equities, distinguishing it from the mutual fund it is modeled after.
- Performance Context: The corresponding mutual fund gained 12% last year, placing it in the sixth percentile of Morningstar’s large-blend category.
Thornburg International Growth ETF (TXUG)
- Management: TXUG is overseen by Sean Sun and Nicholas Anderson, who also manage the Thornburg International Growth mutual fund (TINGX).
- Portfolio Distinction: Similar to TXUE, this ETF is more focused and does not include emerging market equities.
- Performance Context: The related mutual fund gained 2.4% last year, placing it in the sixty-third percentile of Morningstar’s large-growth category.
Thornburg’s Deliberate ETF Rollout
Thornburg is approaching the ETF market with a measured strategy, ensuring its offerings provide unique value to investors. While the new ETFs are similar to Thornburg’s existing mutual funds, they are not exact replicas. Instead, they offer concentrated portfolios with a focus on developed markets, aligning with the firm’s goal of providing specialized investment solutions.
Future Plans
- Thornburg has already announced plans to expand its ETF lineup, with two bond-focused ETFs, the Thornburg Core Plus Bond ETF (TPLS) and the Thornburg Multi Sector Bond ETF (TMB), slated for launch in the coming months.
- Additionally, Thornburg filed with the Securities and Exchange Commission (SEC) for permission to create an ETF share class for its mutual funds. While the SEC has yet to rule on this matter, Thornburg’s application is part of a broader industry push to offer investors more flexibility through ETF share classes.
Key Hires and Strategic Direction
Thornburg’s move into the ETF market follows the hiring of Richard Kuhn, a 20-year veteran of Invesco, as head of product. Kuhn’s expertise underscores Thornburg’s commitment to establishing a strong presence in the ETF space.
The ETF Market: A Growing Opportunity
Thornburg’s entry into the ETF market reflects the broader growth of this investment vehicle. ETFs have gained immense popularity in recent years due to their cost efficiency, tax advantages, and flexibility. According to industry reports, global ETF assets under management surpassed $10 trillion in 2023, driven by robust investor demand.
Why ETFs?
- Cost-Effectiveness: ETFs often have lower expense ratios compared to traditional mutual funds, making them appealing to cost-conscious investors.
- Tax Efficiency: ETFs are structured to minimize capital gains taxes, a significant advantage for taxable accounts.
- Liquidity and Accessibility: ETFs trade like stocks, offering intraday liquidity and ease of access for retail investors.
Challenges and Opportunities for Thornburg
While the ETF market presents significant opportunities, Thornburg faces challenges as it competes with established players like Vanguard, BlackRock, and Invesco. However, the firm’s focus on actively managed ETFs, combined with its strong track record in mutual funds, positions it to carve out a niche in the market.
Potential Risks
- Market Competition: The ETF market is highly competitive, with several well-established players dominating the space.
- Regulatory Uncertainty: The SEC’s pending decision on allowing ETF share classes for mutual funds could impact Thornburg’s future plans.
Opportunities for Growth
- Active Management: Thornburg’s expertise in active management could differentiate its ETFs from passive index-tracking funds.
- Focus on Non-U.S. Markets: By concentrating on developed markets outside the U.S., Thornburg’s ETFs offer investors diversification opportunities.
What This Means for Investors
Thornburg’s expansion into the ETF market provides investors with new opportunities to access the firm’s expertise in managing international equities. For those looking to diversify their portfolios, Thornburg’s ETFs offer a compelling option, particularly for exposure to non-U.S. developed markets.
Key Takeaways for Investors
- Diversification: Thornburg’s ETFs focus on developed markets, providing exposure beyond the U.S.
- Active Management: Investors seeking actively managed strategies may find these ETFs appealing.
- Future Growth Potential: With additional ETFs in the pipeline, Thornburg is poised to expand its presence in the market, offering more options for investors.
Conclusion
Thornburg Investment Management’s entry into the ETF market marks a significant milestone for the firm and underscores the growing importance of ETFs in the investment landscape. With a focus on active management and international equities, Thornburg’s new offerings cater to the evolving needs of investors seeking cost-effective and diversified solutions.
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