Growth investing gets all the headlines but is value investing a hidden star? Coming up, we have the answer.

From Thrivent Asset Management, welcome to Advisor’s Market360^™, a podcast for you, the driven financial advisor.

Value investing has always been one of the foundational strategies at Thrivent Asset Management. But have recent events and changes to the investing landscape made this strategy passe? How have structural changes such as the rise of passive investing, the dominance of a handful of mega-cap tech stocks and higher interest rates affected the opportunity set for value investors? To answer these questions and many others, we invited three of Thrivent’s value investing experts to join us. They are Kurt Lauber, portfolio manager for Thrivent Large Cap Value Fund, Chris Parker, portfolio manager for Thrivent Small Cap Value ETF and Graham Wong, portfolio manager for Thrivent Mid Cap Value ETF.

Let's get into it…

A good place to start is to have our guests describe what value means to each of them in context of their strategies. We’ll start with Lauber:

Lauber: We look at it a little different than others. We understand that if a company has a strong return on invested capital, they deserve a higher multiple. Now we're not talking current returns on invested capital. We're talking future returns on invested capital. And so how we define value, if you had a graph and you looked at one axis, you'd say value is on that axis, right. Returns on the, on the lower axis. And we say if you can, you know, if you can deliver higher returns, you deserve a higher valuation. So, anything below that curve will, we think is attractive. If you have good returns, and you're trading at a lower valuation than others with those particular returns in the future. We find that attractive. So, we're always looking for what returns are priced in. And are we different than other investors? And that provides our opportunity.

We asked Wong how he thinks about value.

Wong: When I think about value, I think about companies that are trading at a discount relative to a strong or improving ROIC—or return on invested capital—profile, which, you know, takes a lot of work on understanding an industry and company and making that proprietary forecast of the future profits. We're also very, very free cash flow focused. So, definitely, with the textbook definition of value, which is a company is worth the present value of its future free cash flows.

And finally, we asked Parker how he thinks about value.

Parker: When I think about value investing, I tend to kind of focus on three core things. The first thing is that value has to be quantifiable. Definitionally value is the intrinsic value of the entire business. That's the present value, the cash flows that that business is going to generate over time, discounted back at an appropriate rate. That's the kind of dry academic answer. But when it comes to forecasting and populating those inputs, having some capability to quantify that is incredibly crucial. So that's the starting point in terms of how I think about value. I think about value investing as the idea of margin of safety and asymmetry. You know, the concept of margin of safety and asymmetry is that I want to buy things at a substantial enough discount that it's heads, I win a lot; tails, I lose very little. And so that's kind of the under, underlying, underpinning of our philosophy as it relates to value.

Benjamin Graham is known as the “father of value investing.” And his book, “The Intelligent Investor” is widely considered the bible of value investing. We wanted to know if, over the years, our guests’ definition of value has evolved or if they are still grounded in the foundational principles laid out in “The Intelligent Investor.” We will start with Lauber:

Lauber: My philosophy really has not changed. And the only thing that's evolved over is just the execution of it. It's easy to say, hey, we're going to, you know, we're focusing on return on invested capital and valuation trade off. But that is the future returns of these companies. So, it really comes down to the bottom-up fundamental analysis and executing on that. So, the, the philosophy hasn't changed. It just, you know, trying to perfect the execution of it over the years.

Wong had these thoughts on the evolution of value investing:

Wong: When I started my career, the thing that I learned the most is to really study the downside of a company in terms of scrubbing the balance sheet and making sure that the free cash flow is there to support the downside and valuation. When I got to Thrivent, I learned a lot more about studying the upside case in terms of, if we’re right, where do return on invested capitals go? And because of that, I also became better at cyclical investing, whereas at my prior stop, it was a lot more focusing on just quality.

And Parker had this to say:

Parker: I used to think arguably, that you could kind of put a value on anything, and if you found things that were sufficiently discounted that that was a good investment. I think I just underappreciated the idea of the range of outcomes that can occur. And the, the probability of success and the shape of those outcomes. So, I think as my, as my philosophy in my execution of that philosophy has evolved, the, the bar in terms of what types of businesses I'm willing to look at has changed. I think for me as well, in terms of how I have evolved, initially, I really didn't put that much focus on management, execution and management, quality and alignment, things of that nature. And I think as I've gained experience, that is definitely a much more critical input in terms of how, how we evaluate investments for the small-cap strategy, how we think about what that's going to mean for our range of outcomes, what that's going to mean for risk/reward.

A lot of people equate value investing with simply identifying cheap stocks. We asked our experts how they distinguish between companies that are inexpensive and ones that are truly undervalued. Here’s Wong:

Wong: So, our process here is to look at a company's operations, valuation and catalysts. So, the process helps us avoid value traps. A company that we would own would not be only cheap, but would have strong or improving operations, and it would have catalysts to unlock the value.

Lauber and his team are focused on avoiding value traps. Here’s his explanation:

Lauber: You know, it’s value for a reason. That's why we really focus on return on invested capital. And we also focused on unlocking that value. So, we might look out in the future and say, hey, the returns in this company are, well, better than what other investors think. But we also say, what's the catalyst? Okay, what's going to unlock that value? So, we try to identify the catalysts in the future. So, we're not stuck in the value trap.

We wanted to learn more about the process for selecting companies to invest in. What does it look like in terms of idea generation all the way through portfolio implementation and inclusion? Here’s Wong:

Wong: I would say we spend a vast majority of our time on operations, studying the industry and the company and the industry’s profit outlook, and importantly, the company's competitive position in the industry. Now, in terms of idea generation, I would say it's very collaborative. We work with our sector analysts, and literally we start with, they are the boots on the ground. So, I would go and approach one of them and ask, hey, what are your top three or four names for the mid-cap value portfolio? And it's an iterative process where we look at the ideas through our lens. And if it's not a fit, we would send them our ideas to them and they would look at it through their lens. So it's a Venn diagram where we're looking at ideas where we both agree are attractive.

Parker’s small-cap value investment team follows many of the strategies of his large- and mid-cap brethren, but he does place a premium on time. We’ll let him explain…

Parker: For us in particular in small-cap, things can stay cheap for long periods of time. Large-cap, mid-cap, there's a lot of money chasing a smaller universe of names. And so, a part of our process that's a little bit more unique is we want companies that can grow and grow value over time. The idea being that if the degree of discount doesn't change, then we're going to hang in there. We can just be very patient.

As you just heard Parker mention, the dynamics of the small-cap market allow for a fair bit of time. But in the mid- and large-cap markets where efficiency and liquidity are more prevalent, a different approach is required. Lauber explains his process…

Lauber: So, the large-cap value investment process, as I mentioned, is return on invested capital valuation trade off. And the only way to get at that is through bottom-up fundamental analysis. But also here at Thrivent, we have analysts with very deep expertise. So, we also asked them to have a process. How do you make money in your sector? And when the two overlap with our investment process is where we seem to make a lot of success.

Lauber asks his analysts to help determine a company’s net operating profit after tax, basically the company’s margin. Here’s why that’s so important:

Lauber: We ask our analysts to drill down on those, you know, margin and the sales asset turnovers for companies and looking out into the future, where do they differ from where consensus is? We look out three years. We have to look out a little further than everyone else. We use the different components of returns. We ask them to rank their companies on, on valuation, operating performance. And the last thing is the sentiment. Is, you know, do people not appreciate what we appreciate? And the catalyst, what do you see? Is it new management, new products, is it just the change in the economy? What's the catalyst that's going to unlock that value?

Of course, a process isn’t complete without a few examples. Here’s Lauber:

Lauber: I just wanted to give you an example of our investment process in large-cap value as we talk about returns and value. One of the names we bought about a year ago, or a little more, was Entergy. So, Entergy is a Louisiana utility. It's based in New Orleans. At the time, the stock was under pressure, the valuation was trading at a 20% discount to utilities. Why was that? Because they were impacted by the hurricanes.

And all sudden we heard these things. They did get that those returns improvement. They got the rate base growth because of electronic vehicles. They signed up a Meta contract for AI. So that's how value investing, at, at Thrivent works. It's very, you know, return on investment, invested capital focused, the operating performance, the improvement in returns, and finally, the catalysts.

Wong had a different type of example in the mid-cap space:

Wong: Flowserve would be a good example of a stock that really reflects our process and that has done well. It's an industrial company that makes pumps and valves, and the thesis is completely self-help. We've done a lot of checks in terms of studying why the company was struggling with its margins and returns. We spoke to probably around 30 of their customers to figure out what is the issue there. And what we found out that was that Flowserve has a great brand; they have great products. But the customers were frustrated with the aftermarket service in terms of getting replacement parts on time. The delivery tends to be late, and service tends to be poor. So, we spoke with the company and learned that they really understood the issue, and it's working on a program to fix it. And we were harvesting the benefit of them selling the products, but then also improving their attachment rate on the aftermarket parts and services, which actually carries higher margin, which is, you know, the type of thesis that we like where margins go higher over time on top of sales growth.

From environmental opportunities to internal improvements, Parker has another example in the small-cap space:

Parker: One example of the implementation of our philosophy and process is Gates Industrial Corp. It's a small-cap manufacturer of belts and hoses for a variety of different types of applications. A large share of the company had been owned by private equity for a long time. So, it was this very kind of not particularly focused on, not understood, boring company. But it looked interesting to us because of some of the things that they were trying to execute in terms of changing the nature of the business. We also did some diligence with customers to understand how Gates was interfacing with them differently, going from being a company that where the product was bought off the shelf, it was a standard formulation or a standard size, to one that was starting to get a little bit more designed for particular customers and for particular types of applications, with a much clearer and greater value proposition to those customers. And all of that due diligence that we were able to do gave us a lot of conviction that the company was headed in the right direction.

A strategy employed by Thrivent’s value investing team is patience. We wanted to get a better feel for the strategy behind these holding periods. Here’s Lauber:

Lauber: The Large Cap Value’s holding period are really—and even our buy discipline is, you know, when we see a company that we think is a good valuation, we develop a thesis for it. So, we'll buy a little then, when the thesis is there. When we see a catalyst that's going to unlock that value, we'll buy a little more. And after that catalyst we'll buy the last piece, when it's here and the, and the stock is working. Our holding periods are usually three years.

Here's how Parker thinks about patience in the small-cap value space:

Parker: We're explicitly modeling out 3 to 5 years, but we really are thinking about the, the long tail of that cash flow stream. And our analysis is really focused on understanding the inputs and the drivers, both quantitatively that we, we’ve talked about in terms of NOPAT—net operating profit after tax—and other variables, but also the, the, the aspects that go into the quality of the business, the competitive moat, the returns that it's able to generate, the, the ability to grow top line. And so that kind of anchors our decision making as being very long term. I'm fairly certain that our turnover and our holding periods are longer than most of our peers. And that really is, a, a key competitive advantage.

For mid-cap value, Wong is also a big proponent of patience. We’ll let him explain:

Wong: In terms of being patient investors, we're definitely not traders. So, when we do a lot of our work, it's really asking the questions about how the company and the company's strategy is going to look three to five years down the road and not asking, hey, are you going to beat this next quarter? We are focused on making the big alpha being long term investors and therefore will be patient to let the company execute on a plan that we agree with and harvest the benefits from it.

Next, we wanted to get some perspectives on how the current market environment and some of the structural changes we've seen — such as the dominance of a handful of mega-cap tech stocks  — how have these changes impacted the opportunity set for value investors? We’ll start with Parker:

Parker: So in, in some ways, value investing and having a position in value in a portfolio is a bit of a hedge, if you will, against the idea that the valuations and the expectations for mega-cap tech have gone too far, and perhaps that the return on capital equation is potentially starting to change for some of those companies. You have started to see capital intensity of companies like Meta ramp up pretty substantially recently, all around the kind of need to obviously invest in artificial intelligence. You've also started to see a broader universe of companies that have ramped up spending, behind some of those efforts. If the returns on those investments don't live up to expectations, that could be challenging for businesses that are in that universe. Whereas oftentimes the value universe, especially if we're thinking about it, is the types of companies that we invest in, but also the conditions under which we invest in, quantifiable, identifiable undervaluation, those types of businesses will keep on ticking over time. They'll keep on generating cash flow. They will grow with the global economy. They're trading at reasonable valuations. In the case of the small-cap universe, we’re trading at one of the cheapest valuations relative to the large-cap universe in quite some time. And so there, there is a portfolio construction thought process in terms of the, the place that value can play, whether it's large-cap, mid-cap or small-cap in an investor's portfolio at this point in time.

The actions of the Federal Reserve, or Fed, is something that Wong is keeping an eye on. We’ll let him explain:

Wong: You know, historically, when the Fed is in the early stages of rate cuts, the economy tends to broaden out, which means that the strength goes—flows from Wall Street to Main Street, which tends to touch more cyclical commodity sectors that are bigger weighted in value. So, I feel like we're kind of in that inflection point. And in addition to stimulus early next year, I think the outlook of value is pretty good at the moment.

For any fund, portfolio construction is key. We wanted to hear more about how current economic factors affect how our value fund managers construct their portfolios: Here’s Parker:

Parker: We really think about investing as investing in companies. The economic environment is what's going to put certain companies for sale at very cheap prices. And we'll capitalize on that when those types of opportunities arise. We're not necessarily trying to construct portfolios that have a big economic tilt to a slowdown or to expansion. It really is, how do the drivers that are occurring in the economy tie to our medium- to long-term forecasts for the business and the mispricing opportunities they created? We try to construct portfolios where the driver of our returns is going to be stock selection and the performance of those individual companies.

When selecting his mid-cap value fund’s holdings, Wong relies on quantitative analysis…

Wong: In terms of quantitative analysis, the role it plays in our process, it's mostly portfolio risk management. So, we spend a lot of time studying factors and risks, but more from a perspective that we don't want any unintended exposure. We don't want to be unintendedly overweight momentum, or beta, or oil, or interest rates, because we are not top-down. We're bottom-up stock pickers. So, all of our time outside of risk management is spent on qualitative company fundamental research.

We would be remiss if we didn’t give our experts an opportunity to weigh in with other insights we haven’t covered. Wong had this to add:

Wong: In terms of AI being a big theme in the market right now, I would say that it's actually very interesting that the AI cycle is starting from the hardware side of things, and many of these hardware companies are actually in value sectors. So, in many ways, we're very excited with the tech names that we own.

We hope you enjoyed this overview of value investing. We would like to thank Kurt Lauber, Chris Parker and Graham Wong for their insights. What did you think of this episode? Email us at podcast at thriventfunds.dot com with your feedback or questions for our experts. Want more episodes of Advisors Market360 and other market and investing insights? Visit us at thriventfunds.com, where you can learn how we can partner with you, the driven financial advisor. Bye for now.

(Disclosures)

All information and representations herein are as of 11/7/2025, unless otherwise noted.

Investing involves risks, including the possible loss of principal. The prospectus and summary prospectus contain more complete information on the investment objectives, risks, charges and expenses of the fund, and other information, which investors should read and consider carefully before investing. Prospectuses and summary prospectuses are available at thiventfunds.com, thriventETFs.com or by calling 800-521-5308.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.

This podcast refers to specific securities which Thrivent Mutual Funds may own. A complete listing of the holdings for each of the Thrivent Mutual Funds is available on thriventfunds.com.

As of 8/29/2025, Thrivent Lage Cap Value Fund holds 1.94% of Entergy Corporation, Thrivent Mid Cap Value ETF holds 0.77% of Flowserve Corporation, and Thrivent Small Cap Value ETF holds 1.97% of Gates Industrial Corporation plc.

Medium and small-sized companies may experience greater price volatility, lower trading volume, and less liquidity compared to larger companies. Large companies can be volatile and unable to respond quickly to new competitive challenges and may not be able to attain a high growth rate. Value investing includes undervalued securities whose value may not rise as quickly as anticipated if the market doesn’t recognize their intrinsic value. Securities may be affected by company performance and market conditions. These and other risks are described in the prospectus.

Thrivent Distributors, LLC, a registered broker-dealer and member FINRA, is the distributor for Thrivent Mutual Funds. ALPS Distributors, Inc., member FINRA, is the distributor for Thrivent ETFs. Thrivent Distributors, LLC is the marketing agent for Thrivent ETFs. Asset management services for the Thrivent Mutual Funds and Thrivent ETFs are provided by Thrivent Asset Management, LLC, an SEC-registered investment adviser. Thrivent Distributors, LLC and Thrivent Asset Management, LLC are both subsidiaries of Thrivent, the marketing name for Thrivent Financial for Lutherans. ALPS Distributors, Inc. is not affiliated with Thrivent or any of its subsidiaries.