Integrating stakeholder principles
The Fund maintains a portfolio of small- and mid-cap stocks that can create value for key stakeholders to maximize potential opportunities.
“In our view, companies that take care of their employees and invest in developing a strong culture—giving their employees the opportunity for training and advancement—and encourage strong human capital policies, as well as managing sustainable business practices, have greater potential to outperform their peers,” Miller said.
The Fund takes a holistic approach to integrating financially material stakeholder considerations. “We really want to see companies that have a long-term approach to addressing these challenges in their businesses to successfully serve their stakeholders and building a moat for investors.”
“We focus on companies with dynamic competitive advantages and strong management teams,” Bizien said. “Executive teams who foster a culture that leverages and expands the company’s competitive advantages are better positioned to sustainably create value for stakeholders.”
In its process, the Fund considers each company’s strategy to successfully serve all key stakeholders, with special emphasis on the environment, employees, customers, suppliers, the community and corporate governance as required by the specific circumstances. “Companies that effectively serve primary stakeholders have the potential to create a competitive advantage that is very hard to replicate,” Miller said. “When we find companies that can do this, it gives us more confidence in our long-term fundamental forecasts.
“As a long-term investor, we are able to establish ourselves as partners with these companies and engage in discussions that really get to the long-term principles of where they're headed as a company, specifically as it relates to their stakeholders.”
Active management
Unlike the vast majority of ETFs, which are passively managed, the Fund is actively managed, relying on Thrivent’s team of experienced small- and mid-cap analysts and portfolio managers.
“As an actively managed ETF, we believe we have an advantage over passively managed funds because we can actively engage and analyze the companies’ key areas of impact,” Miller said. “We have a number of different resources to help us analyze and understand the areas that we're looking into and their ultimate ramifications on stakeholders.”
While many passive ETFs may own 300 to 500 equity holdings, the Fund can take a selective approach, limiting its holdings to a relatively small selection of small- and mid-cap stocks that offer the best potential for long-term growth. “We're really looking for the top 70 companies that are doing a good job of addressing these material stakeholder issues across their business,” Miller said.
“We believe our advantage relative to passive ETF funds is our ability to understand these issues from a complete 360-degree perspective, to see what their customers, their employees and other stakeholders are saying, and then also to engage with the individual companies and talk through what they're doing, what they're seeing, and how they are managing these issues in their business. Those elements of analyzing their operations and then engaging with the companies to try and understand what's really happening on the ground, we believe, gives us an advantage over traditional index funds.”
Benefits of ETFs
The easiest way to think about an ETF is that it's similar to a mutual fund, but it comes with four primary advantages:
- ETFs may reduce investors’ tax burden through a more efficient tax structure.
- ETFs offer increased liquidity, with the ability to trade in the ETFs throughout the day, as opposed to just at the close of trading like a traditional mutual fund.
- Because of the way ETFs are structured and managed, they typically come with lower costs.
- There are no investment minimums, so anyone can own an ETF.