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Gene Walden
Senior Finance Editor

FUND COMMENTARY

Bringing faith and finances together with targeted managed accounts

12/21/2021
By Gene Walden, Senior FInance Editor | 12/21/2021

Invest in what you believe. That’s the impetus for a growing universe of investment products including managed accounts designed to help financial professionals offer their clients investment choices that align with their beliefs.

“There are a lot of different ways that you can build portfolios to align with people's values,” explained Jeff Branstad, CFA, Model Portfolio Manager. “You have funds that take environmental, social, and governance (“ESG”) considerations into the investment process to varying degrees, you have a wide variety of faith-based products across multiple different faiths; you have carbon-free products. At Thrivent, we've chosen to partner with Christian asset management firms in order to build model portfolios that include a faith-based perspective.”

Total global assets in “sustainable” investments have moved up rapidly recently both through new inflows and market appreciation, from about $600 billion in 2018 to about $2.5 trillion in 2021, according to Morningstar.i  To this point, U.S. investors make up only a small part of the pot, accounting for just 14% of the total, while European investors account for 82%.

“Sustainable” investing is an overarching term that generally refers to the selection of assets that seek to minimize natural, social, and economic resource depletion and negative impacts. The selection of assets can be done using various and sometimes overlapping techniques including ESG analysis, exclusionary or inclusionary screening, and impact investing, among others.

Although the sustainable investing concept has not yet reached broad familiarity among Americans – only about one-third of American adults are familiar with ESG criteria – among those who are, 77% say they take ESG ratings into account when making an investment decision, according to a recent Yahoo-Harris Poll survey.ii

If the trend toward sustainable investing in the U.S. continues to follow a trajectory similar to Europe’s, financial professionals in the U.S. may want to make plans to meet the challenge. Many have already started: Among all U.S. financial professionals, 79% consider ESG “extremely important” or “somewhat important,” according to the Morningstar report.

Drilling down to faith-based investors

While sustainable funds run the gamut of ethical interests and approaches, faith-based products may appeal to a more focused subset of investors. Thrivent Asset Management, LLC (“Thrivent”) manages three products within the Thrivent Faith-Based Portfolios: Moderately Aggressive, Moderate, and Moderately Conservative.

Thrivent Faith-Based Managed Portfolios are geared toward investors looking to participate in the equities markets while avoiding such areas as gambling, adult entertainment, abortion, and the manufacturing or distribution of alcohol and tobacco products.

Thrivent has a long history of managing model portfolios. Although Thrivent Faith-Based Managed Portfolios were launched in July 2020, Thrivent has been managing other model portfolios since 2007.iii

“The primary difference between these portfolios and the other portfolios we manage is the investable universe,” said Branstad. “The strategic and tactical asset allocations are generally the same across all of our portfolios. But in the case of Thrivent Faith-Based Managed Portfolios, we include Christian asset managers who approach investing with a faith-based perspective.” These underlying managers use exclusionary screening and sometimes ESG analysis in their investment approach.

What are the trade-offs and risks?

Can investing in what you believe in affect your bottom line? Do exclusionary screens, such as those that exclude certain types of businesses, lead to a drop-off in performance?

“There's been a lot of research done on that, and in general, the answer is: not necessarily,” explained Branstad. “Obviously, excluding certain companies could have short-term negative impacts towards performance. But a lot of people believe that the long-term impact may be positive by eliminating companies that are in certain types of businesses.”

Although Branstad acknowledges that the specific allocations of a belief-based model portfolio may be a little different than Thrivent’s other model portfolios, the overall approach remains the same. They start by determining a strategic allocation model and then pick the right funds, in the proper allocation, to fill out that model.

“Within each model portfolio, if the portfolio manager screens out stocks from a certain sector, they can add back other stocks from that same sector to balance it out,” he added. “For instance, if they screen out some healthcare companies that don’t meet their criteria, they can offset that by adding back other healthcare companies—leaving the sector exposure roughly the same.”

The management process goes well beyond asset allocation models. “We also monitor all the underlying managers that we use in the models, including our Thrivent managers, on a daily, monthly, quarterly basis,” added Branstad, “always keeping a close eye on how the models are tracking with their allocation targets and how the underlying managers are performing.”

Branstad said there are three primary components to building managed portfolios: strategic targets, tactical allocations, and the underlying managers.

“Research points to the most important one being the strategic targets. Next is the tactical allocation, and third is the underlying managers,” he added. ”"If you trust your work, if you do your homework and you make decisions built on solid ground, you give yourself the best chance of meeting your goals.”

To learn more about Thrivent Faith-Based Managed Portfolios, see Managed Accounts - Faith-based Portfolios.


i Morningstar Roundtable, “ESG and the Investor,” 08/25/2021

ii Yahoo Harris Poll, “ESG is not yet popular but important to those who know: Survey,” 09/01/2021

iii Before May 31, 2019, Thrivent Managed Portfolios were offered through Thrivent Investment Management, Inc, an affiliate of Thrivent Asset Management, LLC. Thrivent Asset Management, LLC personnel comprised a committee that made investment recommendations for these portfolios to Thrivent Investment Management during that time. Since the same investment personnel are involved, Thrivent Asset Management, LLC Model Portfolio performance includes results from the periods the portfolios were offered by Thrivent Investment Management.

Investing involves risk, including the loss of principal. The prospectus and summary prospectus for the securities within the model portfolios contain more complete information on the investment objectives, risks, charges, expenses and other information of the fund, which investors should read and carefully consider before investing. To obtain prospectuses, contact your Regional Investment Consultant or call 800-521-5308.

Faith-Based Investment Strategy Risk. The Faith-Based Model Portfolios’ investment strategy limits the types and number of investment opportunities available to the models and, as a result, the allocations among asset classes may vary from other TAM model portfolios and strategies that do not have a Faith-Based focus. In addition, the Faith-Based models may underperform other strategies that do not have a Faith-Based focus. Further, the Faith-Based models’ investment strategy may result in the model allocating to underlying funds that hold securities or industry sectors that underperform the market as a whole or underperform other strategies screened for, or that do not include, securities that conflict with the Faith-Based focus of the models.  While TAM monitors the allocation and performance of the underlying funds selected for the models, TAM does not monitor whether the underlying funds include securities that conflict with the Faith-Based focus of the models. Further, if the models include underlying funds that liquidate securities for violations of one or more screening criteria, such liquidation could negatively impact the performance of the underlying fund and the models. 

Thrivent Asset Management’s role is providing sponsors of managed accounts with non-discretionary investment advice in the form of model portfolios. The implementation of or reliance on a model portfolio is at the discretion of the managed account sponsor. Thrivent Asset Management is not providing personalized investment advice or investment recommendations and will not make any representations about the suitability of a model portfolio for any investor. Thrivent model portfolio information is intended for use only by third-party adviser firms in conjunction with their management of their clients’ accounts. The information about the Thrivent Managed Portfolios is confidential and should not be disclosed, copied or used for any other purpose. Thrivent Asset Management does not have investment discretion over, or place trade orders for any portfolio derived from this information.

Thrivent Managed Portfolios will include Thrivent Mutual Funds. Thrivent Asset Management, LLC (“Thrivent Asset Management”), a registered investment adviser, serves as investment adviser and administrator to the Thrivent Mutual Funds and receives fees for its services as disclosed in the applicable Funds’ prospectuses and Statement of Additional Information. As the investment adviser for Thrivent Mutual Funds, Thrivent Asset Management has greater knowledge of these funds and has a tendency to prefer Thrivent Mutual Funds over non-affiliated funds, which may be a conflict of interest. Thrivent Mutual Funds included in the Faith-Based models do not incorporate an exclusionary screening process, but do not own securities that may conflict with certain values as described above. Thrivent and its subsidiaries may earn distribution and other fees, including 12b-1 fees, in connection with Thrivent Mutual Funds. For more information about potential conflicts of interest, read the Thrivent Asset Management Form ADV – Part 2 Brochure. Thrivent Mutual Funds are distributed by Thrivent Distributors, LLC, member FINRA/SIPC. Both Thrivent Asset Management and Thrivent Distributors, LLC are subsidiaries of Thrivent, the marketing name for Thrivent Financial for Lutherans.


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