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How Thrivent hopes to grow beyond its base of religious investors

[March 24, 2017] By David Randall

NEW YORK (Reuters) - Little-known Thrivent Financial, a Minneapolis-based asset manager that offers financial services to Lutherans, is hoping its recent streak of outperformance will make it stand apart at a time when steep investor outflows are prompting a wave of mergers throughout the mutual fund industry.

The firm, which collectively manages $15 billion across its 23 funds, received its second consecutive Lipper Award for best overall company in the small company division, and its third consecutive win in the Mixed Assets, Small Company division, at an award ceremony Thursday night in New York.

While other firms struggle to retain assets as more investors opt for low-priced index funds and exchange-traded funds, Thrivent has received net inflows of $57 million since the beginning of 2017, making it one of the few bright spots in the active management industry.

Its challenge now is how to grow outside its base of current customers, mainly Christians in the U.S. Upper Midwest who have average account balances of $38,000 invested with the firm.

Unlike other religiously affiliated mutual fund firms, Thrivent's funds do not feature any screens that prevent it from investing in companies in industries like alcohol or firearms, making its funds more directly comparable with secular firms that offer funds at much lower costs.

"We are never going to be competitive with BlackRock <BLK.N> or Vanguard on price", said David Royal, president of Thrivent Mutual Funds. "Rich people can afford to be in a hedge fund, but regular people shouldn't be forced into index product they may not understand," he said.

Overall, Thrivent gives its managers wide leeway to invest as they see fit. "There’s not a Thrivent way of managing money that we pass out," said David Francis, vice president of investment equities.

The Thrivent Mid Cap Stock fund, its best-performing fund, is up 30.8 percent over the last year, and up an average of 11.4 percent over the last three years, putting it among the best U.S. focused mid-cap funds. Its largest holdings include regional bank Zions Bancorp, Southwest Airlines Co, and Applied Materials Inc.

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The Thrivent Large Cap Value fund, meanwhile, is up 20.1 percent over the last year, in part because of large positions in Cisco Systems Inc, Microsoft Corp and Citigroup Inc.

Last March, the firm began airing its first ever television commercials, attacking the notion of index-based investing by depicting robots in suits mismanaging money. The long bull market in U.S. stocks, which began in 2009, has falsely convinced investors that active management is unnecessary, Royal said, adding that "at some point it will flip, and I worry what happens to the average investor then."

Investors in some of Thrivent's funds pay above average annual fees. Investors in its Thrivent Large Cap fund, for instance, will pay $1.20 per $100 invested, compared with the $0.14 per $100 invested in the Vanguard 500 Index fund. The Thrivent fund has lagged the S&P 500 over the last 1 and 3 years.

ATTRACTIVE TARGET

The firm's religious affiliation is an asset as it grows because its customers may be less likely to pull dollars from a fund that is underperforming, said Todd Rosenbluth, director of ETF and mutual fund research at CFRA. That sort of sticky customer base may make it an acquisition target, he said.

"Asset managers that can retain assets are particularly appealing in this environment when traditional products are facing fee compression," Rosenbluth said.

Eaton Vance Corp <EV.N>, for instance, acquired $12.3 billion Calvert Investment Management in 2016, in large part because of the firm's long history of socially responsible investing. The terms were not disclosed.

Royal said that Thrivent has no plans to sell itself.

"We would not be a seller, we would be a buyer," he said. "Certainly there's not any interest around here in selling our funds business. We are here to grow it."

(Reporting by David Randall; Editing by Jennifer Ablan and David Gregorio)

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