MILLER: I'm Chad Miller, one of the portfolio managers on the Thrivent Small and Mid-Cap Equity ETF. The ticker is TSME, and it is a actively managed ETF. 

BIZIEN: I'm Simon Bizien and I co-manage TSME with Chad. And our objective is to outperform
the Russell 2500 Index by finding companies that create value for their primary stakeholders. 

MILLER: And to do so, we have a dedicated fundamental research team of approximately 30 or so professionals that are looking at trying to understand the companies, their industries and really identify the opportunities that we should focus on to create value for our shareholders. We launched the fund in October of 2022, and we recently celebrated our three-year anniversary in October of 2025.
 
BIZIEN: So, we actively manage this fund and our focus on companies that create value for their primary stakeholders. And what that means is these companies are creating valued partnerships with their customers, their employees, their suppliers. And that's supported by a strong governance structure, which enables them to capitalize on opportunities while navigating, navigating risks as they come up. Something that makes our fund unique relative to other funds
that might have a more narrow universe, such as a small-core fund or a mid-cap growth fund, is our very wide opportunity set. We're able to invest in both small-caps, mid-caps, value stocks and growth stocks--really where we see the best opportunities. 

MILLER: That's a great point. And so that gives us the flexibility to shift between the different areas of the market as we're seeing opportunities. If we look at the value side of the equation, we may look to optimize or invest more in those types of companies when valuation spreads are wide. And that's showing us that the valuation discount that those securities are trading at is an opportunity for us to invest in. And the flip side of that is when the spreads are more narrow. We may be able to find more opportunities in the growth side of the equation. 

The other benefit is with the wide investable universe. We're able to identify companies earlier in their opportunity set so we can find an ideally, a small-cap company that is relatively small, has a long runway ahead of them for  improvement. With all the structures that we look for in terms of benefiting stakeholders, and that provides a really long runway where we can hold the company as it grows up into the mid-cap universe and hopefully generate a lot of value for shareholders in doing so. 

We have the flexibility to go where the value is in our investable universe. And one of the things that we have worked on over time is to really try and identify those factors in those industries that outperform over the long term. And so what that's allowed us to do is exclude areas that struggle to compound value over the long term. These are areas with low returns that are highly capital intensive, that might not have a ton of differentiation relative to their peers.

And if we exclude those by screening and out of our investable universe. The flip side of that is that we find companies that really have a lot in their control. They can grow organically, they can expand margins, they're creating value for their ecosystem. And very importantly, we focus a lot on capital allocation for these companies. So do they have the opportunity to reinvest in their current business, and do they have the opportunity to acquire or create value with their capital allocation? We found a lot of companies that have a dedicated philosophy and a process around capital allocation is extremely important because over the long term, those investments that they're making today will eventually be our returns over the next 5 to 10 years. 

And so, understanding the companies that have a philosophy on how to create cap value with capital allocation is extremely important. And we're able to do that by moving across our investable universe from small to mid, from value to growth, and really keying in on the specific sectors of the SMID universe that have the opportunity to do that over the long term

BIZIEN: That's a great point. And another thing that's unique about our universe is we're able to focus on smaller companies that are often overlooked by Wall Street and identify those that are earlier in their value creation journeys that do have the strong capital allocation philosophies and opportunities in front of them to create a long runway for compounding. And because we can hold mid-cap companies, we're able to hold those companies and benefit from them from that compounding longer than funds with more narrow mandates.

So, we take a long-term approach. And we start with identifying management teams and companies that have a mission to create value. This is supported by a governance structure and a culture that enable that to happen. And what this might look like in practice are companies that are constantly rated as a top place to work. Their products and services are loved by their customers, and they're creating win-win relationships with their suppliers and their communities.
 
MILLER: And just to build off that, Simon, is we're looking at these individual companies. And at this level, you're getting into understanding the differentiation, how the product is valued by the end consumer, how they're partnering with their suppliers, and even a step above that is the company level. And so, at this level, you're looking to analyze the management team, the governance structure, the strategy over the long term and their philosophy for capital allocation. 

And what that allows us to do is if we find those companies that have a very strong company structure, we can have a long thesis duration. And so that allows us to identify these companies early and watch them grow and expand and, um, capitalize on all the opportunities they have out there in the environment. And so what that allows us to do is to find those companies that have minimized their risks and maximize their long-term opportunities on the upside.

So, the goal of the fund is to outperform the Russell 2500 Index over the long term. And to do that, we focus a lot on the higher quality companies, as evidenced by their durable growth profile, their higher returns and their strong free cash flow generation. 

We have the ability to pivot between value and growth. And so as we see valuation spreads that might be wider, that's telling us that we should shift to the value opportunities because that risk is priced into those stocks. And they could have a strong appreciation opportunity ahead of them. 

On the flip side, when the spreads are more narrow, that is telling us that the average company is valued approximately the same, and so we should shift to the growth companies that are generally higher quality, that have more under their control, that have a longer growth runway. 

The place where the fund may struggle is in market environments where low quality companies do well. And you see that in times of kind of we refer to it as a low quality rally where companies that might have higher debt, they might have higher short interest, they might have lower profitability. Those companies can experience rapid appreciation, typically at market turns when people get excited off of the bottom. These companies can outperform. And so in those cases, there is a potential that we will lag the market environment in that case. But we've spent a lot of time trying to focus on how companies are successful over the very long term. 

And so that's one of the things we try to focus on is avoid those lowest quality companies and be okay that sometimes when those lowest quality companies have a strong performance period, we'll lag a little bit. 

One of the great opportunities of our fund is the ability to capitalize on volatility. And so, when we experience volatility in the market, which we know will happen inevitably at some point, it's just a question of when, we have a plan in place to capitalize on those opportunities. So, we're constantly looking at what are our highest conviction long-term opportunities? And as we get pullbacks in those companies, we frankly get pretty excited to see that. And that's an ability for us to add to those individual companies. 

And I think the same can be true on the investing side. And so, as you see volatility or pullbacks in the market and that impacting TSME, that can be an opportunity for those investors that have a long-term investment horizon who understand that that is a short-term impact. And so those investors can also use those opportunities to invest more in the fund during those times. 

And we supplement all of that with the Thrivent research team that is constantly coming up with new ideas to mix up the portfolio. One of the things we've been most successful with is just comparing a great idea versus maybe a good idea in the fund, right? And so, we're constantly looking to trade up in the portfolio. And that can happen during normal times or especially in volatility, that allows us an opportunity to do so.