In the latest episode of “ETF 360,” VettaFi head of research Todd Rosenbluth spoke to Chad Miller, Senior Portfolio Manager with Thrivent Asset Management. The two discussed the (TSME ).
“Small and mid cap companies are a really great place to invest. In fact, if we look back over the past thirty years, small and mid cap equities have the highest annualized return of any publicly traded asset class in the US,” Miller noted, pointing to the tendency of small- and mid-cap companies to have higher growth rates and benefit from merger and acquisition activity. Small- and mid-cap firms also tend to have stickier shareholders, who are more likely to be insiders and less likely to turn their shares over in the marketplace. “They have a longer runway for growth and improvement,” he added.
Why Active Management Matters In the Small Cap Space
Asked about why active is important in the small-cap space, Miller pointed to three main tenets: “First is the great team we’ve built up, second is our process, and third is our long term focus.”
Miller applauded the team of 35 investment professionals who are doing the work to make TSME as successful as possible, and outlined how their long-term approach looks out beyond the next week or quarter and to the next 3 to 5 years.
Rosenbluth also asked about the ESG component of the fund. Miller shared that after their usual process, they analyze through an ESG lens: “We think there are unique and useful insights in this ESG information.”
As an example, Miller noted that stakeholder value is critical to their analysis. When looking at a company, Thrivent sees value in what those companies are doing holistically to serve the place they are operating out of, offering, “We’re looking for those companies that can sustainably and successfully serve their primary stakeholders.”
Financial materiality is also critical to their ESG process. Finding the three to five most important ESG metrics to a given company’s financial success is an integral part of the Thrivent process. Miller also noted that, as long term investors, engagement with the company is also important.
“We don’t have any sector exclusions because we believe in bottom up research,” Miller said. “We’re really using this to help us identify risks and opportunities.” Miller noted that many companies have risk factors that relate back to a category somewhere under the “e”, “s”, or, “g” label. Because they take a case-by-case approach in how they approach each firm, this allows Thrivent to choose companies that are taking active steps towards addressing potential areas of risk.
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