The Thrivent International Equity Fund demonstrated a weaker performance compared to its designated benchmark during the final quarter of 2025 and throughout the preceding year. This shortfall in returns was largely due to the fund's strategic underweighting in emerging markets, which generally outperformed developed markets, alongside subdued outcomes from large-capitalization stocks in developed economies. In response, the fund is re-evaluating its approach, intending to amplify its holdings in low-volatility and momentum-driven assets, as these factors currently present attractive valuations. Conversely, it plans to scale back its exposure to value-oriented factors, which have become comparatively expensive across global markets. Notably, within the Japanese market, low-volatility investments appear to offer considerable value, while traditional value stocks are seen as overvalued, and other market factors maintain a neutral stance.
A significant contributing element to the fund's underperformance was its allocation strategy within emerging markets (EM) relative to the benchmark. The Thrivent International Equity Fund maintains a substantially reduced allocation to EM assets when juxtaposed with the MSCI AWCI ex-USA Index. This divergence in allocation played a critical role as emerging markets delivered stronger returns during the period in question. Furthermore, the global trend saw low-volatility strategies consistently lag behind, whereas value-centric factors emerged as the leading performers worldwide. This dynamic presented a challenging environment for the fund's investment philosophy, which, while focusing on diversified international equities, faced headwinds from both its regional weighting and factor exposures.
Looking ahead, the fund's management is making strategic adjustments to its factor exposures. The current market analysis indicates that low volatility and momentum factors are now exhibiting more favorable valuations. Consequently, the fund aims to incrementally increase its exposure to these areas. This shift is a direct response to the observed market trends and an effort to capitalize on undervalued segments while mitigating risks associated with overvalued ones. The management team believes that by re-calibrating these factor exposures, the fund can better align with evolving market conditions and enhance its potential for future returns. This adaptive strategy underscores a commitment to navigating complex global markets with a forward-looking perspective.
The Thrivent International Equity Fund faced a challenging quarter and year, primarily due to its lower exposure to high-performing emerging markets and the underperformance of its selected factors. Moving forward, the fund intends to strategically adjust its investment approach by favoring low-volatility and momentum factors, which currently offer more compelling valuations, while reducing its focus on previously successful but now expensive value factors. This tactical realignment is designed to optimize the portfolio's positioning for future growth in an ever-changing global investment landscape.