In this era of historically low interest rates, most money market funds have been offering no yield to investors. Yet money market funds have traditionally been a popular place for investors to park their assets before moving them into stock or bond investments. 

For your clients who may be rolling over their retirement fund assets during this uncertain economic environment, Thrivent Limited Maturity Bond Fund – Class S (THLIX) might offer better return potential as a placeholder for those dollars – particularly if you plan to move those assets gradually into bond or equity funds through dollar cost averaging.

Although the Thrivent Limited Maturity Bond Fund does entail credit risk, that risk tends to be less than other bond funds but more than a money market fund.  Unlike a money market fund, this fund has a variable Net Asset Value (NAV) so the share price may go up or down especially in periods of market volatility. The Fund holdings are very short duration instruments that carry low interest-rate risk. The Fund recently offered a 12-month distribution yield of 1.66% and a 30-day SEC yield of 0.91%¹ (Rates are as of June 30, 2021). (See current rate)

The Fund invests primarily in investment-grade corporate bonds, government bonds, asset-backed securities, mortgage-backed securities and collateralized debt obligations. It may also invest a portion of assets in foreign securities. The portfolio enhances yield with a diversified portfolio including securitized debt, such as government-guaranteed residential mortgage-backed securities and high-quality structured securities with underlying assets such as corporate and student loans. 

While the principal of the Fund may experience some volatility due to fluctuations in the interest rate environment, its shorter duration makes the Fund less sensitive to interest rate changes than some longer-duration funds. As a result, the Fund may be appropriate for an investor who is seeking the opportunity to generate a modest level of income (with some investment risk), but with less interest rate risk and a lower return potential than most longer-term bond funds.

Comparing performance during a similar environment

The current interest rate environment is similar to the one we faced coming out of the Great Recession. The following two graphs show the difference in performance on an investment of $10,000 between the Thrivent Limited Maturity Bond Fund and the Thrivent Money Market Fund with no yield during the period from June 2012 and May 2013. The performance figures exclude dividends and reflect net asset value performance only:

As you can see, the growth of $10,000 and the cumulative income from the Fund were both significantly better than the return from a money market fund (which was zero).

Dollar cost averaging results

Now let’s suppose that your client has a rollover of $500,000 that you plan to invest in mutual funds gradually through a dollar-cost averaging strategy. The following chart shows what would have happened if you had started with that $500,000 in rollover funds and invested $50,000 a month in another mutual fund during that same time period referenced earlier (June 2012 through May 2013). 

This example assumes that you started with a deposit of $500,000 in the Thrivent Limited Maturity Bond Fund versus the same investment in the Thrivent Money Market Fund at the beginning of the first month and began withdrawing $50,000 to invest each month and began withdrawing $50,000 to invest at the end of each month, continuing until the initial $500,000 had been invested in the 11^th month. The example assumes that dividends earned each month are reinvested back into the Thrivent Limited Maturity Bond Fund.

As you can see, after the entire $500,000 was invested, you would still have had $8,060 left in the Thrivent Limited Maturity Bond Fund after 11 months (which could be reallocated to another investment) versus no money left in the Thrivent Money Market Fund.