closer look

Thrivent Financial: A Deeper Look at Their Performance

closer look

Thrivent Financial is a wonderful story about a non-profit that has done a tremendous job formulating a successful financial planning process. Focusing on the niche clientele of Christians, Thrivent provides a process that incorporates facets of overall wealth management like life insurance, long-term care, annuities, investments, and strategies for institutions.

We say this in all sincerity, and just to be extremely up front about the reason for this particular article; this is not to diminish the value that Thrivent Financial has brought to their clients. Their process for financial planning is obviously extremely helpful and valuable for investors. Otherwise, they wouldn’t be as big of a company as they have grown to be. The purpose of this particular article is to highlight the importance that independence plays when it comes to the implementation of a financial plan.

The financial plan is the overall framework or “roadmap” in which a wealth advisor and their client operate. It sets the expectations in terms of financial goals, risks, and how we manage the latter in order to accomplish the former. Implementation of this financial plan is a separate process that requires independence and diligent thoughtfulness towards what is going to give the client the most confidence (or highest probability of success) of meeting those goals that we have established in our financial roadmap. It incorporates ideas like insurance, investments, estate planning, charitable giving, etc. Each of these topics should be tackled with the fiduciary standard of care. In other words, what is the best solution for all of areas of the financial plan? While providing all of these services “in house” or under one umbrella brings a tremendous amount of convenience to the end client (who probably doesn’t want to spend an exorbitant amount of time talking about it), it might not necessarily be the very best that can be done.

Now while the difference between insurance products might seem like splitting hairs, other areas, such as investments, can vary tremendously in terms of performance and therefore have a very impacting effect on an individual’s financial goal. Assumptions about projected savings rates and expected returns are only as helpful as they are realistic to accomplish. The vehicles we decide to use to build a portfolio need to be properly vetted in order to ensure we are on the right track for our clients. We went ahead and examined the mutual fund lineup that Thrivent offers to their investors to get a better understanding of the value they bring within the investment sphere of their business.

Within Morningstar, we found 46 different strategies offered by Thrivent. The oldest fund has an inception year of 1973, so it is safe to say that Thrivent has been in the fund management business for quite awhile. In their over four-decade history of providing investment solutions for investors, how have they fared against their Morningstar assigned benchmark? In other words, has there been significant outperformance across their fund lineup that allows us to conclude that their investment process has benefitted their investors? Many of readers may have seen us do a similar analysis across other fund families such as Fidelity, American Funds, Lord Abbett, JP Morgan, and MFS Investment Management.

Let’s first take a look at one of the biggest determinants in long term accumulated wealth: costs. Across their 46 strategies, the average expense ratio was 0.84%, which is slightly lower than the overall average amongst actively managed funds. Similarly, average turnover within their funds has been approximately 85%, which means that, on average, they are holding on to their investments for 14 months. It is safe to conclude that Thrivent is being very short-term (speculative) in their thinking and their strategies are almost in alignment with a typical active investment fund. Some funds include front-end or deferred loads, as well as 12b-1 fees, which some investor may or may not pay depending on who they buy the fund from. We have included a table below that displays all of the details on the costs found within each fund.

Thrivent Funds Loads and Fees

Name (Click to View Alpha Chart) Ticker Turnover Ratio % Prospectus Net Expense Ratio 12b-1 Fee Max Front Load Global Category
Thrivent Limited Maturity Bond I THLIX 102.00 0.37     US Fixed Income
Thrivent Ser Limited Maturity Bond   102.00 0.44     US Fixed Income
Thrivent Municipal Bond A AAMBX 8.00 0.75 0.25 4.50 US Municipal Fixed Income
Thrivent Ser Bond Index   407.00 0.48     US Fixed Income
Thrivent Income A LUBIX 97.00 0.77 0.25 4.50 US Fixed Income
Thrivent Ser Income   87.00 0.44     US Fixed Income
Thrivent Government Bond A TBFAX 130.00 0.90 0.13 2.00 US Fixed Income
Thrivent Opportunity Income Plus A AAINX 169.00 0.88 0.25 4.50 US Fixed Income
Thrivent Opportunity Income Plus Port   140.00 0.79     US Fixed Income
Thrivent Ser High Yield   42.00 0.44     High Yield Fixed Income
Thrivent High Yield A LBHYX 43.00 0.80 0.25 4.50 High Yield Fixed Income
Thrivent Partner Ser Worldwide Allc   78.00 0.91     Global Equity Large Cap
Thrivent Partner Ser Emerging Mkts Eq A   14.00 1.40     Emerging Markets Equity
Thrivent Partner Emerging Mkts Eq A TPEAX 69.00 1.68 0.25 5.50 Emerging Markets Equity
Thrivent Ser Moderately Aggressive Allc   88.00 0.72     Aggressive Allocation
Thrivent Growth and Income Plus Port   176.00 0.82     Aggressive Allocation
Thrivent Moderately Agrsv Allocation A TMAAX 61.00 1.21 0.25 5.50 Aggressive Allocation
Thrivent Growth and Income Plus A TEIAX 167.00 1.17 0.25 5.50 Aggressive Allocation
Thrivent Partner Worldwide Allocation A TWAAX 77.00 1.40 0.25 5.50 Allocation
Thrivent Moderate Allocation A THMAX 73.00 1.11 0.25 5.50 Moderate Allocation
Thrivent Balanced Income Plus Portfolio   111.00 0.66     Moderate Allocation
Thrivent Balanced Income Plus A AABFX 124.00 1.08 0.25 5.50 Moderate Allocation
Thrivent Diversified Income Plus A AAHYX 137.00 1.10 0.25 4.50 Cautious Allocation
Thrivent Ser Diversified Income Plus   136.00 0.61     Cautious Allocation
Thrivent Ser Moderately Cnsrv Allc   182.00 0.61     Cautious Allocation
Thrivent Ser Moderate Allocation   134.00 0.64     Cautious Allocation
Thrivent Moderately Cnsrv Allocation A TCAAX 140.00 1.05 0.25 5.50 Cautious Allocation
Thrivent Aggressive Allocation A TAAAX 51.00 1.31 0.25 5.50 US Equity Large Cap Growth
Thrivent Partner Ser Growth Stock   38.00 0.85     US Equity Large Cap Growth
Thrivent Partner Ser All Cap   105.00 0.90     US Equity Large Cap Growth
Thrivent Ser Large Cap Growth   43.00 0.44     US Equity Large Cap Growth
Thrivent Large Cap Growth A AAAGX 45.00 1.20 0.25 5.50 US Equity Large Cap Growth
Thrivent Ser Large Cap Stock   64.00 0.67     US Equity Large Cap Blend
Thrivent Large Cap Stock A AALGX 65.00 1.02 0.25 5.50 US Equity Large Cap Blend
Thrivent Ser Large Cap Index   3.00 0.26     US Equity Large Cap Blend
Thrivent Ser Aggressive Allocation   58.00 0.82     US Equity Large Cap Blend
Thrivent Ser Large Cap Value   20.00 0.64     US Equity Large Cap Value
Thrivent Large Cap Value A AAUTX 24.00 0.94 0.25 5.50 US Equity Large Cap Value
Thrivent Small Cap Stock A AASMX 56.00 1.26 0.25 5.50 US Equity Small Cap
Thrivent Ser Small Cap Stock   56.00 0.76     US Equity Small Cap
Thrivent Ser Small Cap Index   12.00 0.29     US Equity Small Cap
Thrivent Ser Mid Cap Index   13.00 0.33     US Equity Mid Cap
Thrivent Ser Mid Cap Stock   37.00 0.71     US Equity Mid Cap
Thrivent Mid Cap Stock A AASCX 27.00 1.11 0.25 5.50 US Equity Mid Cap
Thrivent Partner Ser Healthcare A   63.00 1.10     Healthcare Sector Equity
Thrivent Ser Real Estate Securities   21.00 0.92     Real Estate Sector Equity

In terms of performance, we first looked at all of their US-based strategies that had at least 10 years of performance history to see if they were able to deliver outperformance over a medium time horizon. Of the 15 funds that were US-based strategies and had at least 10 years of data, not a single one produced a positive alpha that was statistically significant to a high degree of certainty (95% confidence level) once we adjusted for the known dimensions of expected return using the Fama/French 3 Factor ModelSee chart below.

We like to do this analysis since many managers are often falsely attributed "alpha" due to bad benchmarking. In other words, the market, size, and relative-price exposure of the benchmark is not properly matched with the market, size, and relative-price exposure of the manager's fund. By increasing exposure any one of these known dimensions of expected return versus a relative benchmark, there is an expectation to outperform without displaying any true act of skill. We have written before about this idea here.

Our analysis also included a comparison of the performance of all 46 funds against their Morningstar analyst assigned benchmark. While it may not be a perfect match in terms of exposure to the known dimensions of expected return, it provides a quick comparison using commerical benchmarks.

The results include the following:

  • 39 out of 46 (85%) have underperformed their Morningstar assigned benchmark since inception. The average underperformance has been approximately -1.53% per year
  • 7 out of 46 (15%) have outperformed their Morningstar assigned benchmark since inception. The average “alpha” has been approximately 0.93% per year
  • 0 out of 46 (0%) has a positive alpha that is statistically significant at the 95% confidence level since inception

We like to look at statistical significance because investing involves working with random variables, and we want to be certain to a high degree of confidence that what we are observing is in fact something that is going to benefit our clients and not just pure randomness. If we told you that there was a 50/50 chance of you doubling your money and losing your money, would you bet your life’s savings on it? We know this is an extreme example, but it highlights the idea of uncertainty when it comes to investing. Going back to Thrivent’s results, while 7 funds had a positive alpha, not a single fund has a very high degree of certainty around its performance. As a fiduciary, we want to have that high degree of confidence when we decide to take action with our clients’ money. You can find all of the individual alpha charts we have put together for each fund below, organized by asset class.

So going back to our discussion about implementation, we now know that although Thrivent has done an excellent job formulating the financial plan for their clients, their implementation as been less than stellar from an investment standpoint. Now this is assuming that Thrivent is investing their clients’ money in their own strategies, but that would make the most sense given that their asset growth cannot be due to stellar outperformance. While it is extremely convenient (and very profitable) to implement clients’ financial plans completely in house, it is not the best overall solution for their clients. From an investment standpoint, their clients would have just been better off buying, holding, and rebalancing a globally diversified portfolio of index funds. We would challenge Thrivent to possibly look to develop an index fund lineup to better assist in implementing the financial plans that they have set out for their clients.

How much does all of this really matter? We showed above that the average underperformance amongst their losing strategies was -1.53% per year. If we just took the average alpha across all of their strategies (with both positive and negative alpha), we would end up with an average underperformance of  -1.16% per year. In other words, if we believed that their past results were indicative of future performance, than an investor picking a Thrivent strategy at random should expect an underperformance of approximately -1.16% per year. If we took a portfolio worth $100,000 and invested it for 20 years, assuming no additions or withdrawals, and expected an average return of 10% per year (historical return of S&P 500 over the last 50 years), it would grow to approximately $672,750 in 20 years. Now that same portfolio earning 1.16% less per year for 20 years would only grow to $544,215: a difference of $128,535 just due to the investment choice alone.

While a robust investment plan is crucial when it comes to the wealth planning process, implementation is equally as important. Bringing convenience to an already confusing topic is valuable, but might not necessarily be worth it once you understand the cost of that convenience. Working with a financial advisor that is independent will help to mitigate that cost.

Below we have included alpha charts for all 80 strategies with available alpha sorted by asset class.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Here is a calculator to determine the t-stat. Don't trust an alpha or average return without one.
The Figure below shows the formula to calculate the number of years needed for a t-stat of 2. We first determine the excess return over a benchmark (the alpha) then determine the regularity of the excess returns by calculating the standard deviation of those returns. Based on these two numbers, we can then calculate how many years we need (sample size) to support the manager's claim of skill.

 

We have taken a deeper look at the performance of several other mutual fund companies and have come to one universal conclusion: they have failed to deliver on the value proposition they profess, which is to reliably outperform a risk comparable benchmark. You can review by clicking any of the links below: