What is Thrivent Income Fund’s objective?

[Thrivent Income Fund’s] primary objective is to seek high current income with a focus on preserving capital. And secondarily, we want to obtain long-term growth of capital, which is helpful to maintain our investors’ purchasing power in an inflation environment like the one we're currently in.

What’s driving demand for intermediate and long maturity bonds?

The primary driver of the increased demand in intermediate and longer-term maturity bond funds has really been the increase in yields that we've seen since the Fed began raising rates. The yield on the benchmark, Bloomberg Corporate Bond Index, is currently about 5.5%. That's the highest we've seen since 2009. So, it's really drawn a lot of capital. And, really, in the broader market, too, we're also seeing a lot of inflows that have been really supportive of corporate bonds, from pension funds, insurance companies – and these flows have been really supportive for the asset class as well.

What does the Fund invest in to achieve balance during rate cycles?

Investment-grade corporate bonds are the primary asset class that the Income Fund invests in. They’re the highest-quality tier of corporate bonds. With the economy potentially heading into a weak spot or soft stretch as the Fed continues to tighten, you generally want to be positioned in higher-quality assets, and investment-grade corporates are that asset within fixed income.

We've actually been bringing down our high-yield exposure throughout the year, particularly into the summer rally that we've seen, and our high-yield exposure is as low as it's been since the pandemic. We're no longer finding valuations there as compelling as they were, and we’d rather wait for a better entry point in the credit cycle before we begin increasing our exposure to high yield again.

How do you manage duration risk during rate hikes?

Duration positioning is not the primary driver of alpha for the Income Fund, but we do actively position the Fund for where we believe rates are heading in the future. At this point, we believe the Fed is nearing the end of its rate-hiking cycle. [The Fed] might still have a little more to do in order to get inflation and the labor markets in better balance.

So, we've been positioned for higher rates throughout the year, but we're really looking for things like the consumer to weaken, labor markets to begin to soften up, and some further signs that inflation is starting to cool. And at that point, we'll begin to really explore the idea of lengthening our duration position.

What makes Thrivent Income Fund different from its peers?

Within our peer group, I think we've got a little more of a flexible or tactical approach than some of our peers do. What's really attractive about the Income Fund is that we can move in and out of different asset classes, whether it's investment-grade corporates, U.S. Treasuries, high-yield debt, preferreds, and securitized, like mortgage-backed securities.

The peer group is very different. We've got a lot of different funds in there; none of them really look the same. But I think that, what sets us apart is that we can move in and out of all these different asset classes. And we have great teams here at Thrivent that are experts in all of these areas.

What’s behind the Fund’s historical success?

Well, we talked a little bit about the research process, but that is really the foundation of the Income Fund’s success and long-term track record. It does have a very long history of success – very few years over the last 15 years has it been below median. And the primary source of that alpha has been security selection.

We have a great analyst team. They know their industries; they know their credits. And this bottom-up research process is where we get all of our ideas. And that has really, really driven the performance over time.

The other aspect that has been very beneficial for performance is this ability to move in and out of asset classes – this flexible investment approach that we've talked about.

Collaboration, I think, is a key part of our research process, whether it's from different asset classes or within investment-grade credit. We communicate a lot, and that's the best way to get ideas into our portfolio. It's a bottom-up driven approach with a top-down overlay – but we really do rely on our analysts, other PMs, and subject matter experts across our fixed-income department.

How do you manage and minimize volatility in the Fund?

Volatility is definitely something that we pay a lot of attention to. We're really focused on risk-adjusted returns. We've got a long history of having below or average risk and above average returns, risk adjusted.

The way that we have been able to do that is this flexible approach that we were just talking about. It's been very conducive to lowering volatility as we find that we can move tactically between asset classes and invest in higher volatility assets when we find them attractive and lower volatility assets when we don't.

We've always had a very solid understanding of where risk is in our portfolios and whether that risk is being priced correctly. If we get that right and adjust our portfolios accordingly, that is a big lever that we can pull to dampen volatility.

Why is long-term consistency important?

Avoiding that type of volatility really does contribute to our long-term performance. Investors don't like to see us up top at the 10th percentile and then down at the 90th percentile, because frequently that's what happens.

So, when we find ourselves at that level – like right now, the Income Fund is actually doing quite well within its Morningstar peer group – then you have to ask a lot of questions. How are we positioned versus our peer group? What's been driving that performance? Are we're comfortable with how we're positioned? And if not, those are the type of things we talked about. How do we adjust for that?

Having a good handle on our peer group does help. You can just look at the peer group and see these funds that do have quite a lot of volatility, and that's not something – especially in fixed income – that most investors want to see.

In your field, what’s one thing that hasn’t changed, and one thing that has?Well, there's no substitute for experience, looking through different market environments and market cycles.

Probably the biggest change, though, has been the amount of resources that we have and use with data. We've got so much more data that we can look at now than we did in the past, [which lets us] slice and dice things and get into the weeds about how our portfolio is constructed. What does our peer group look like? How much high-yield exposure does our peer group have? How are we positioned versus our peer group with duration and risk? There's just so many tools that we have available that we've built here at Thrivent – quantitative tools that help us manage our portfolios. And that's been, by far, the biggest change.

In what ways is Thrivent unique? How do those things impact your career?

I think the thing that makes Thrivent a unique place to work – and a really rewarding place to work – is that it has a very mission-driven environment and corporate culture. And, because of that, I really do feel like the work that we do on a day-to-day basis actually means something more than it might have if I otherwise worked at a big public company doing the same thing. So, at the end of the day, I really do feel like we're closer to our investors and making a difference in their lives.

What are your hobbies? How might they make you a better portfolio manager?

When I do have time, I really enjoy reading. I think that one of the things that makes a good investor is curiosity, and I like to see people that read in our group. It just broadens your horizon and the way you think about the world. Things are changing so rapidly all the time and we’re trying to keep on top of that change.