Thrivent Small-Mid Cap ESG ETF (TSME): Q&A With Senior Portfolio Manager Chad Miller

Brief recap of TSME

TSME is an actively managed ETF that invests in small and mid-cap stocks that are able to create value for primary stakeholders in order to compound long term value for shareholders...

Unlike traditional ETFs that track an index, TSME's holdings are the result of bottom-up fundamental analysis conducted by the investment team, aimed at selecting and weighing investments based on their merit.

In a move to protect its investment strategy, TSME operates under a semi-transparent model. This means that while the ETF trades on the market like any other, it is not obligated to disclose its complete holdings daily. This approach helps to safeguard the proprietary nature of its investment strategy from potential imitators.

Despite the typically higher cost associated with active management, as evidenced by a 0.65% expense ratio, TSME has demonstrated notable performance. It has outperformed its benchmark, the Russell 2500 Index, by returning 24.98% over the trailing year, compared to the benchmark's 21.43% I think we should use the Russell 2500 Index as we are moving away from the 400 ESG Index.

Q&A on TSME

Tony: "Can you elaborate on how TSME's ESG methodology sets itself apart from the more traditional exclusionary screeners that are commonly used by ESG ETFs from larger fund companies?"

Chad: "TSME doesn't exclude any sector or business line involvement as a part of our process. Instead, we rely on our investment process to find companies that create value for their primary stakeholders and address financially material ESG issues. Companies that do this often form a competitive advantage that is very hard for competitors to replicate."

"Our process combines fundamental and ESG-related topics to form a complete picture of how these issues may impact a company's future operations. Through this rigorous process, we seek to identify companies that are addressing important risks while also capitalizing on opportunities that surround various fundamental and ESG topics."

Tony: "The focus of the TSME on small- and mid-cap companies is notably distinct from the broader market or sector-specific ESG ETFs typically seen in the market - what strategic advantages do you see in targeting this segment?"

Chad: "At Thrivent, we have a very deep and experienced team of analysts and portfolio managers covering the small and mid cap space. This foundation helps inform where we may find opportunities and the issues and topics that are most relevant to consider in our research process

Because of our experience in small and mid-cap companies, along with our long-term investment horizon, we're able to become trusted partners to the companies we invest in. This allows us to develop a better understanding of ESG and fundamental issues where the reported data might not be readily available today."

Tony: could you provide some insights into a few of TSME's top holdings, highlighting what specific qualities or ESG practices these companies exhibit that align with the fund's investment criteria?

Chad: "For example, strong board-level governance led to improved executive talent at Modine Manufacturing. The new leadership team shifted the company's focus towards maximizing value for customers. One example is how they've been able to leverage their highly skilled employee base to create unique solutions to solve specific customer pain points.

"These new solutions are often lower emissions or resource-intensive products selling into data centers, commercial vehicles, and HVAC markets. This has driven increased revenue growth and more investment in employees and local communities as the company continues to expand."

"Another to note is Quanta Services, an industry leader in employee investment, training, and development. This has positioned the company as a critical partner to help maintain a safe, reliable, and efficient energy grid in the United States."

"As a result, customers have formed deep partnerships with Quanta as they position their network to solve the growing challenges of end users. This positive feedback loop has positioned Quanta as one of the most important companies in their ecosystem to help drive a shift to a more reliable and efficient energy grid over the coming decade."

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.