Part 1: About Thrivent Income Fund

My name is Kent White. I’m the portfolio manager for Thrivent Income Fund. I've been managing the Fund since 2017. I’m also the Head of Fixed Income here at Thrivent. I co-manage the Fund with Cortney Swensen, who has also been on the Fund since 2023.

What’s Thrivent Income Fund’s objective?

The primary objective of Thrivent Income Fund is a higher level of current income, and we seek to do that through investing primarily in investment-grade corporate bonds.

A secondary objective is the preservation of capital. How we do that is, generally, in certain environments, we might want to shift into a higher-quality positioning in the Income Fund, whether that’s through higher-quality corporate bonds or asset allocation decisions, like shifting more of our portfolio into U.S. government bonds or other high-quality investments.

What makes the Fund different from its peers?

I think that what makes Thrivent Income Fund a little bit different from its peer group is that we’ve got a flexible approach to how we invest through the cycle. We’re very cognizant of where valuations are across different asset classes. Thrivent has a very deep and broad team of portfolio managers and research analysts across different asset classes, whether it’s high yield, emerging markets, or securitized assets. We are very collaborative, and we have a lot of conversations about where valuations are. Depending on how we want to be positioned, as well as our risk profile and those valuation inputs, we will move in and out of different asset classes over time.

Also, within our corporate bond holdings, we try to stay pretty diverse. It’s not a very concentrated portfolio. I know that there are some funds that run very concentrated, but we try to—especially through some cycles—we try to be a little bit more diverse in our corporate bond holdings.

Why is flexibility important?

As I mentioned earlier, one of the primary objectives is preservation of capital. There are other asset classes that we can move to in order to accomplish that, whether that’s U.S. Treasuries, mortgage-backed securities or other less risky asset classes.

At the same time, a secondary objective of the Fund is capital appreciation. It’s not all about just when things are risk-off. We also are opportunistic, and we can move into things like high yield or emerging market debt when we think those valuations are attractive. So, there’s a lot of flexibility in the Fund to move in and out of asset classes based on where our team feels there’s value.

Part 2: Competitive Performance

How has the Fund performed versus its benchmark?

Thrivent Income Fund, Class S, outperformed its benchmark, the Bloomberg Corporate Bond Index, during the second quarter of 2024. We accomplished that primarily through security selection, which is where we really like to see our alpha generation come from. We’ve got a great team of analysts that provide a lot of input into our portfolio process. The primary way that we want to outperform is by good security selection—deciding which companies we want to be invested in.

Thrivent Income Fund, Class S, also has a four-star Overall Morningstar Rating^™ versus its Corporate Bond Fund peer group.

Part 3: Strategy & Management

How do you choose which bonds to invest in?

We have both top-down and a bottom-up strategies for creating a portfolio. My primary role on the Fund is to have more of a top-down view: where do we see the economy going? Where are we at in the credit cycle? And how will that influence how we’re positioned in corporate bonds?

Then, we have a team including myself and Cortney Swensen who manage all the corporates inside the Fund, and we really rely on our head of research, Tracy Pamperl, and our research team to provide us with the bottom-up input. They will provide us with recommendations for which industries we want to be overweight or underweight, and within those industries which companies they would like us to be invested in. So, it’s a very collaborative process.

We work not only with our research team, but also our trading desk. We get a lot of market color from our traders, as well. It really is a very collaborative process in which it’s a team that puts this portfolio together.

How do you manage risk when rates are high?

Depending on our view on the economy and the credit cycle, we also adjust our risk profile within the Fund. Credit spreads are the main metric that we look at. A credit spread is the incremental yield that you get over a risk-free government bond. So, in some environments, spreads are very tight, and we don't feel like we're getting compensated for risk, and we'll try to go up in quality in those types of environments. Other times, credit spreads look very attractive, and we’ll go down to lower quality credits, dip into high yield or emerging markets, and that's one way that we manage risk within the profile.

There are other types of risk as well, including interest rate risk. But credit risk is the primary risk that we’re focused on in the Income Fund.

In terms of interest rate risk, we are very cognizant of how we’re positioned versus our peer group, whether we’re long duration or short duration and where we’re positioned on the curve in an environment like this in which we anticipate the Fed will begin to cut rates. We want to be positioned at different points of the curve in that type of environment. We also manage interest rate risk in the portfolio, and we accomplish that primarily through our Treasury and futures holdings and adjust where we want to be on the curve depending on the interest rate environment that we are foreseeing.

Part 4: Current Market Environment

What’s driving demand for bonds?

Demand across the entire fixed income market has been extremely strong, and that’s mostly a result of where yields are. We’re at historically high levels. We haven’t seen the yield across investment-grade corporates or high-yield corporates at these levels, in some cases, in over a decade, 14 years, 15 years. So, we’re seeing a lot of inflows into these asset classes, whether it’s municipal bonds, investment-grade corporates or high yield.

We expect this demand to continue to be strong, especially as we get into a potential or a likely Fed rate cutting cycle. We’re going to see money move from really short-duration money market funds in all likelihood out the curve as the market and retail investors begin to anticipate the Fed lowering rates.

Why consider fixed income in a rate cutting cycle?

The reason fixed income is attractive at the beginning of a Fed rate cutting cycle is that, typically, fixed income yields—whether it’s governments or corporates—will decline by anywhere from 2.5% to 3%. That’s what we’ve seen in the past three rate cutting cycles. When rates are declining, the price of the bonds are also increasing, so you’ve got that capital appreciation that makes fixed income more attractive.

Part 5: Long-term Approach

Has the Fund changed since its 1997 launch?

The way that we’ve managed Thrivent Income Fund really hasn’t changed too much over the years. We still have this really great process that has not changed at all. But we do have access to a lot more information about what our peer group looks like and other quantitative tools. We’ve got a great quant team here that can get us a lot of information like that.

I’d say that, since I’ve started managing the Fund in 2017, we’ve probably increased our exposure to corporate bonds a little bit more than it had been in the past. But outside of that, it’s the same philosophy, same process.