Swensen: Hi. I’m Cortney Swensen, a senior portfolio manager with Thrivent Asset Management.

Gagne: Hi. I’m JP Gagne, senior portfolio manager at Thrivent Asset Management.

Part 1: Fund management strategy

Q. What’s Thrivent Limited Maturity Bond Fund’s high-level strategy?

Swensen: The Fund invests in securities with a lower maturity profile or a lower duration of the overall Fund.

Q. How do you co-manage the Fund?

Swensen: JP and I bring sector expertise to our dual portfolio management structure. JP specializes in securitized bonds. These are bonds backed by pools of interest-bearing loans such as auto loans, student loans, mortgages. I focus on the corporate credit portion of the Fund. That is primarily investment-grade corporates, which is the highest quality of the corporate spectrum. But also, we do invest in high quality high yield.

Our risk buckets are something that we talk about and collaborate on—how much risk do we want in the portfolio and what that risk is to be comprised of. Do we want more corporate exposure or more securitized exposure at any one point in time based on our economic outlook or market conditions? And also, how much risk-free exposure or Treasuries do we want in the Fund at any given time?

Q. What’s your strategy for selecting bonds?

Swensen: For choosing specific bonds on the corporate side, it’s really a bottom-up approach using our research team, which is an experienced group of analysts that cover specific sectors such as banks or energy, and they have an outlook on each of those sectors. Analysts recommend whether to buy or sell individual companies within their sectors, and us as portfolio managers decide which securities along the maturity and quality spectrums to invest in.

Gagne: When choosing specific bonds in the securitized market, we approach it much like the investment-grade side. We utilize our research team to underwrite every single deal that we look at, and they do the analysis to make sure that we are principally protected, because our number one goal for this portfolio is to get the principal back for our investors.

Typically, there is additional spread in the securitized market and that comes from the structural and prepayment risks that investors take. Therefore, in this portfolio, we try to target AAA and the most senior bonds. Therefore, we avoid any extension and default risk.

Q. How do you manage risk within Thrivent Limited Maturity Bond Fund?

Swensen: Managing risk is a primary focus of the Fund. Bonds have an asymmetric risk profile, of course. If all goes well, you get back your principal and your interest. But if [things don’t go well], you can potentially lose your entire investment. And while principal loss is very rare in the investment-grade market, it does occur.

So, first and foremost, our research teams are monitoring our credits for new information that might change our opinion of a credit. And we as portfolio managers sell any investments in which our core thesis has changed in a significantly negative way.

Gagne: As for managing risk in the Fund for the securitized side, it’s a little bit unique versus the investment-grade side. Within the securitized market, every single deal has the ability to buy from tranches from AAA down to BB. Therefore, we use our research team to underwrite each of these deals to [determine] where we are comfortable within the rating spectrum. Our goal is to invest in the tranche where we feel like we have 8 to 10 times the principal protection as our expected loss estimates. Therefore, it still leads us back to typically the most senior tranche, which most of the time is AAA rated.

Swensen: On the overall portfolio level of the Fund, another way we manage risk is to invest in high-volatility assets only at times that we think we’re being properly compensated for that risk and investing in lower-volatility assets in times that we’re not.

Part 2: Current market environment

Q. What’s driving demand for short-term bond investments?

Gagne: The demand for short-term investments really is driven by the shape of the yield curve right now. Going back to October 2022, that was the first time we saw the yield curve invert. What that means is that the two-year yield is actually higher than the ten-year point on the curve. For investors, what that means is you can now buy a shorter-duration asset that doesn’t have the same risk profile as owning something that’s 10 or 30 years long.

These aren’t normal conditions. We expect the yield curve to normalize at some point at which we will have an upward-sloping curve. So, for short-term investors, not only are we locking in the high current yield, but we also have some potential for price return in the future, because as rates go down, prices go up. So, if we do see interest rates go down by 50 or 100 basis points, we have the potential to see added return for the Limited Maturity Bond Fund.

Q. How do you adjust the portfolio in a changing environment?

Gagne: As the market and interest rates continue to change, the biggest tool that we have is managing to a duration. In 2022 and 2023, when we knew that interest rates were going to continue to go higher as the Federal Reserve (Fed) was hiking rates, we ran the portfolio much shorter than our peers would normally have run it. We had a higher allocation to floating-rate instruments and [due to how] we tend to bucket the portfolio, we had more investments in the 1-to-2-year area and less in the 4-to-5-year area.

Now, as we anticipate that the Fed is done hiking, we are positioning the portfolio to be much more nimble and duration-neutral. Therefore, it gives us the ability to adjust our investments as we see fit and as we get more clarity on what the Fed is actually going to do.

Q. How will interest rates affect the Fund this year?

Gagne: I expect interest rates to positively impact the Fund in 2024. Even though we’ve seen a lot of rhetoric in the market that we’re going to have rates higher for longer, we anticipate that at some point the Fed is going to reverse course and begin cutting rates. At that point, as fixed income investors know, as interest rates come down, prices go up. So, in the Limited Maturity Bond Fund, not only are you going to earn the current yield, but there’s the potential to also have some price appreciation within the portfolio.

Part 3: Why Thrivent Limited Maturity Bond Fund?

Q. Who might find Thrivent Limited Maturity Bond Fund fitting for their goals?

Swensen: Thrivent Limited Maturity Bond Fund is a good fit for investors who are comfortable with some duration risk that will allow them to participate in price returns once the Fed begins cutting rates. These investors may not be comfortable bearing the potential price fluctuations of longer-maturity bond funds.

Q. What are the Fund’s challenges? Successes?

Gagne: We’ve seen both challenges and successes within the Thrivent Limited Maturity Bond Fund. From a success standpoint, Cortney and I are very fortunate to have stepped into a Fund that has very strong long-term performance. We were also able to overlap with the previous PMs and learn from some of the expertise that they had, and that has allowed us to continue the success that we’ve seen in the last few years.

From a challenges perspective, we’ve definitely seen a lot in the last couple of years. Both COVID and higher interest rates have really caused a lot of angst in the market and made things very difficult for fixed income investors.

First, with COVID, there was just a lot of uncertainty around what was going to happen, how it was going to work itself out and where the markets were going to be. We were lucky enough to be nimble during that period, and actually some of our best months and best investments came right after COVID.

As we came out of COVID, the Fed began raising interest rates. For fixed income investors, this is very, very difficult as price performance tends to underwhelm during periods of rising interest rates. In 2022 and 2023, we were positioned short duration. However, we had no idea of when or how long they were going to continue to raise rates. Therefore, it definitely presented a challenge to us. But, we came through it great and our one-, three- and five-year performance all really speaks to the to the success that we've had in this Fund.

Q. How does consistency play a role for Thrivent Limited Maturity Bond Fund?

Gagne: Consistency in the Fund is paramount.

We take a lot of pride in historically having a lower-than-average volatility and a higher-than-average return in this portfolio. We think it’s a perfect recipe for a Fund’s success, and we really hope we can continue to show that through our performance going forward.

Q. What makes this Fund different from its peers?

Swensen: The Fund is different than its peers given its flexible approach to asset allocation. This really goes back to JP and I being sector experts in securitized and corporates, which—we aren’t just a corporate fund or just a securitized fund as some of our peers are, but we have a tactical approach to looking at the market opportunities at any given time and deciding whether we want to allocate more towards securitized or corporates, and also, of course, into Treasuries in order to lower any beta of the Fund.

Q. Since the Fund launched in 1999, what’s changed? What hasn’t?

Gagne: What hasn’t changed is our approach to investing, which is really bottom-up, and we want to make sure that any investment that we make is going to return the principal back to the investor.

Furthermore, we’ve kept the same mix of investments that we look at. We’ve always invested in Treasuries, in securitized and in corporates. That mix changes over time. But we’ve always had those tools for us to invest in.

Swensen: Something that has changed a lot in the corporate market in recent years is, with the advent of ETFs, liquidity has improved tremendously, which we as fund managers can look to and take advantage of securities that are mispriced due investor demand or the lack thereof.

Something else that has changed a lot over the last decade is the amount of quantitative tools that are at our fingertips that we can use to manage on both an overall portfolio level and then also digging into slicing and dicing portfolios, looking at different risk profiles, whether it be duration, industry risk, country risk—all the different ways to look at risk within a portfolio.

Gagne: One other thing that has changed is we have an additional investment-grade PM on the portfolio. Previously, there was no investment-grade portfolio, so we didn’t have the expertise and therefore the investing was limited in that space.

In addition to that, in the securitized space, we’ve seen a lot of changes just in regard to the rating agencies. Coming out of the Global Financial Crisis, a lot of the focus was on the securitized market and some of the defaults and the losses that we saw. Therefore, rating agencies have taken a much more conservative approach to rating our space, which I think has given an opportunity for more investment.

Part 4: Getting to know the portfolio managers

Q. How did you get your start in fund management?

Gagne: I got my start managing funds a little bit later than many. I spent the first 15 years of my career on the sales side working for various banks. During that period, I always covered Thrivent. I covered them for both investment-grade credit and for securitized. I built up a relationship and a rapport with the team so that, when I decided with my family to make a move back to Minnesota, it was a natural fit for me to come work at Thrivent.

I’ve always had a strong math and analytical background, and I always found a passion for my own personal investing that I wanted to take to the institutional side and for other investors.

So, I joined the team just over five years ago, and I’ve loved every minute of it, and I love every challenge that’s come with it.

Swensen: I started my career in engineering and earned my MBA, which allowed me to pivot into finance, which is something I had always had an interest in, even as a kid. After earning my MBA, I worked on the sell side for a year and quickly determined that the buy side was a better place for me with my math background, and I just wanted to know how investors decided what to buy. Why were they buying, and why were they passing on these deals that we were trying to sell them?

So, I’ve worked on the buy side now for 17 years, and I have been fortunate enough to have traded, been a research analyst and then moved into portfolio management, which was my long-time goal. I managed the Emerging Market Debt Fund for a while, I’ve managed corporate-only funds and also mixed-asset fixed income funds, such as Thrivent Limited Maturity Bond Fund.

Q. What do you enjoy about managing Thrivent Limited Maturity Bond Fund?

Swensen: What I really enjoy about managing Thrivent Limited Maturity Bond Fund is that there’s always ways to add value. Given the short-duration nature of the Fund, we have bonds that are constantly rolling down the curve, coming into either maturing or coming into a space where we can sell bonds at attractive prices. And so, this gives us an opportunity to come in every day and look for new opportunities to invest in.

Gagne: My excitement for managing the Thrivent Limited Maturity Bond Fund comes from the diversity of investments in which we can buy in this portfolio. And especially in the securitized side, coming out of the crisis, a lot of the loans that are now being originated are all much shorter duration. Therefore, we’re seeing new entrants and new asset classes growing every single day. Even if you just go back three years ago, we had never seen residential transition loans. We’ve seen unsecured consumer loans, we’ve seen private student loans—we’ve seen a lot of sectors really, really grow since the crisis. So, coming in each day and learning a new asset class and deciding whether or not it’s a fit for Thrivent Limited Maturity Bond Fund is very exciting.

Q. How are you involved in your community?

Gagne: My involvement in the community is centered around my children at this point. I have three young kids, so most of my evenings are spent coaching either basketball, softball, hockey or t-ball. Away from that, I’m also on the board at my alma mater, Cretin-Derham Hall, on their investment group, helping to manage their endowment.

And lastly, a hat tip to my wife—she’s involved in both the Children’s Cancer Research Fund, as well as Rein in Sarcoma on their boards.

Swensen: Finance and education are both areas that I’m passionate about, and I’ve been lucky enough to be involved with my local school district, which is the Minnetonka School District [on its] Finance Advisory Committee. And the purpose of this committee is to serve as a liaison between the school district and residents, really to give feedback to the district, and also to communicate with the community the school district’s objectives. This has allowed me to see both the challenge and the reward of a well-managed school district and also to get inside the mindset of a bond issuer.