What is a managed portfolio?
Managed portfolios, which can also be called model portfolios, are broadly diversified, prepackaged investment portfolios made up of mutual funds and ETFs. They are typically spread across a variety of risk tolerance levels like aggressive to conservative, and they are used by financial advisors as part of their investment advisory business to help clients meet their investment goals. Typically, they are discretionary models, which means that when a manager makes allocation changes, they automatically get cascaded down into all of the different accounts that are tied to those models, all at the same time.
How are these types of portfolios managed?
At Thrivent, we have a team of five people who are responsible for managing these portfolios. That means that we set the strategic and tactical allocations and select the underlying managers to fill out those allocations. We then closely monitor the portfolios to make sure that they're staying on target to our allocation strategy, and we closely monitor the underlying managers as well to see how they are performing. The Thrivent Faith-Based Model Portfolios were only launched in July of 2020, but we've been managing model portfolios at Thrivent since 2007.
What’s the purpose of Thrivent Faith-Based Managed Portfolios?
Thrivent Faith-Based Managed Portfolios are designed for investors looking to align their finances with how they live and what they believe by seeking to avoid investments in companies that may conflict with those values, such as those associated with gambling, adult entertainment, abortion and the manufacturing or distribution of alcohol and tobacco products.
How is it different from other kinds of managed portfolios?
The primary difference between Thrivent Faith-Based Managed Portfolios and the other portfolios we manage is the investable universe. The strategic and asset allocation strategies are generally the same across all the different portfolios. But in the case of the faith-based portfolios, we include Christian asset managers who approach investing with a faith-based perspective. This unique collection of managers helps provide investors with an opportunity to invest with purpose.
What types of companies are screened out?
The firms that employ exclusionary screens in our models are responsible for determining and implementing those screens themselves. Typically what they do is they look for a certain revenue threshold and exclude any companies that have greater revenue than what they're looking for. So if a company has 5% in alcohol sales, that might be allowed because the rest of the company is not associated in alcohol. But if it has 55% from alcohol sales, it would be excluded. Each one of those managers does it slightly differently than the other. We also use a few funds that don't have exclusionary screens. But those funds are in asset classes like government bonds or municipal bonds that don't need to have exclusionary screens because the types of companies that typically are getting screened out just don't exist in those asset classes.
Why should investors use managed portfolios?
Managed portfolios can give advisors and their clients access to professional investment management and best-of-breed mutual funds and ETFs. This combination can help build diversified portfolios that can help clients meet their goals and invest with purpose.
How does it compare to other values-based offerings across the industry?
There are several different types of value-based investment options out there in the managed account world and in the mutual fund world. You have ESG funds, which are environmental, social and governance; you have a wide variety of faith-based products across multiple different faiths; you have carbon-free products – there's lots of different ways that you can build portfolios to align with people's values. We partner with Christian asset management firms to build investment portfolios with a faith-based perspective.
What’s the asset allocation strategy for Thrivent Managed Portfolios?
We manage these portfolios very closely. We start with a strategic allocation process, which we refine every couple of years that kind of sets the big targets of equity versus fixed-income, domestic versus international. Then periodically, usually I'll say three to six times a year, we make tactical allocation changes where we lean towards a certain asset class. Maybe we lean towards large cap or we lean towards value stocks or we lean towards credit bonds. And then on top of that, we're also very closely monitoring all the managers that we use in the model. So we are constantly reviewing the models at a daily, monthly, quarterly level, always keeping a close eye on how they are tracking with their allocation targets and how the underlying managers are performing.
Are there any adverse effects to excluding certain investments?
One frequently asked question in regards to products that have exclusionary screens is: are there any trade-offs performance-wise? Are you sacrificing performance by excluding certain types of companies? If you take a certain company out, are you going to automatically have lower returns? There's been a lot of research done on that. And in general, the answer is: not necessarily. Obviously, excluding certain companies could have short-term negative impacts towards performance. There are a lot of different ways to manage those differences. So if you take a lot of stocks out of a certain sector, you can add back into that sector to balance it out, so you're not going to automatically be underperforming. If, say, Health Care does really well and you had screened out several Health Care companies, you can add in different Health Care companies to help offset that.
What’s the most important lesson you’ve learned while working with investments?
One of the key lessons I've learned in managing model portfolios is not to sweat the small stuff. There are three primary components to building managed portfolios: your strategic targets, your tactical allocations and your underlying managers. All the academic research points to the most important one being the strategic targets. Next is the tactical allocation, and third is the underlying managers. That often seems the most pressing because it's very easy to look at the scorecards and see who is performing well and who is struggling. And it's helpful to remember to trust your work. If you put in your homework and you make your decisions built off of solid ground, you're going to meet your goals if you stick with it – and the biggest pieces are those two at the front, the strategy and the tactics.