Thornburg Income Builder: New Fund Goes For Both Income And Growth

It was just about this time last year that the Thornburg funds first introduced their Thornburg Investment Income Fund (800-847-0200); a fund that may invest its assets in both in stocks and bonds from the U.S. and abroad.

"We wanted to create a fund that number one, had an attractive level of income; and number two, allowed income to grow over time in a "steady way," says Brian McMahon, president, and CIO of Thornburg Investment Management in Santa Fe, New Mexico. " The way McMahon and his investment team plan on meeting both of those goals is by investing in primarily dividend paying stocks and bonds.

But creating a diversified portfolio of income generating securities isn't as easy as one might think. Why? Because in the U.S. market, there isn't a lot of diversification among the types of stocks that pay dividends. For instance, McMahon's research shows that 46 percent of the top 100 dividend yielding stocks in the Russell 1000 are REITs (Real Estate Investment Trusts) and 33 percent are utility stocks. "In the Russell 2000 (Index) it's even worse---79 percent are REITs and 7 percent are utilities, " he says.

To get the kind of diversification he was looking for, the fund's managers had to look outside of the United States. Thus far, that investment strategy has paid off as year-to-date (through Dec.4) the fund's total return was a positive 26.53 percent.

With around 50 stocks and 25 bonds in its portfolio, here's more about the Thornburg Investment Income Builder Fund (TIBAX) from McMahon:

Q: Tell me about the kinds of companies the fund invests in.

A: The core attributes that we look for in a stock are the company's willing to pay a dividend and its ability to pay. There are certain companies where paying the dividend is something that they know they are supposed to do. They look at it like meeting payroll every Friday. And others that don't.

Q: But paying dividends (by American companies) during the 1990s wasn't the trend.

A: You're right. It wasn't the trend and became kind of the anti-trend because the only thing that everyone wanted was growth. Now people are saying they want money and that they need the money.

Q: What are some of the names of the international dividend paying stocks in the portfolio?

A: One is Tesco. It's a retailer in the U.K. and I think of it almost as a Wall-Mart with a bare bones corporate headquarters and lean-and-mean corporate thinking. The company has been around for 20 years, it's now worldwide with stores in Eastern Europe and Asia. And the yield on the stock is around 2.7 percent. They take it as a given that they are supposed to pay a dividend and they allow for that.

Am example of a foreign company that you wouldn't think of right off the top of your head is Samsung Electronics. It's very hard to find a technology company that pays a dividend but Samsung does. The yield today is about 1.7 percent on the stock. Based in Seoul, Korea, they are the biggest maker of flat screen TVs and biggest (maker) in the world of random memory chips.

Another Korean company we like is Sindo-Ricoh. There are a world leader in copies and printers and the yield in that stock is over 3 percent.

Q: What are the biggest risks to investing in this fund?

A: That the prices of the stocks--or the bonds---go down. The blended, weighted average price/earnings ratio on the stocks we own now is in the mid-12's right now. So it's not a real racy priced portfolio. The return on equity on average is about 16 percent and the average dividend yield about 3.6 percent. On the bond side, average duration is about 4 years and the average quality, triple-b.

Q: Do you have some of your own money invested in this fund?

A: Yes, I have.

For more information about The Thornburg Investment Income Fund, including minimum investment requirements, breakpoint information and comments about where the fund stands on market-timing and late-trading issues, visit their visit their web site at: www.thornburg.com.