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Pinpointing winners requires a sound investment process.
Pinpointing winners requires a sound investment process.
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 2.33% and a 30-day SEC yield of 1.38%1 (Rates are as of July 31, 2020). (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.
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).
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 11th 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.
As the above charts illustrate, while the risk may be greater, in this example, your clients would have ended up with more money to invest by parking their assets in the Thrivent Limited Maturity Bond Fund rather than in a money market fund.
To learn more about the Thrivent Limited Maturity Bond Fund, see Thrivent Limited Maturity Bond Fund Seeks Higher Yields with Lower Risk.
1 The 12 Month Distribution Yield is the sum of a Fund’s total trailing dividend distributions for the last 12 months, divided by its net asset value or share price at the end of the period. The 30 Day SEC Yield is a standardized yield calculation developed by the Securities and Exchange Commission (SEC). It captures the net investment income earned by a fund over a 30-day period, after the deduction of the Fund’s expenses. It’s an annualized percentage, based on the Fund's share price on the last day of the period. Since share prices and yields are subject to fluctuation, current yields should not be considered an indication of future results.
Performance data cited represents past performance and should not be viewed as an indication of future results. Investment return and principal value of the investment will fluctuate so that an investor's shares, when redeemed may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Call 800-847-4836 or click here for performance results current to the most recent month-end.
You could lose money by investing in the Thrivent Money Market Fund. Although the Thrivent Money Market Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Thrivent Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Thrivent Money Market Fund's sponsor has no legal obligation to provide financial support to the Thrivent Money Market Fund, and you should not expect that the sponsor will provide financial support to the Thrivent Money Market Fund at any time.
The information presented does not consider your firm’s or clients’ investment objectives and may not be suitable for all investors. This material should not be construed as investment advice, a recommendation to purchase or sell specific securities, or to adopt any particular investment strategy. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, investment, accounting, legal or tax advice.