To meet growing investor demand for alternative investment strategies, American Century Investments has introduced three new alternative portfolios – Core Equity Plus, Disciplined Growth Plus and Market Neutral Value. All will employ short selling but in different proportions and using different investment approaches. These new portfolios complement American Century Investments current alternative strategies – Real Estate, Global Real Estate, Global Gold, Strategic Inflation Opportunities and Equity Market Neutral.
Core Equity Plus and Disciplined Growth Plus are managed by Asset Allocation and Quantitative Equity Chief Investment Officer Scott Wittman (pictured) and Senior Portfolio Manager Bill Martin. Core Equity Plus team also includes portfolio manager Claudia Musat, while Lynette Pang is a portfolio manager on Disciplined Growth Plus. Both teams share five investment research analysts.
“The new quantitative strategies are designed to meet the evolving needs of our clients, who are looking beyond long-only strategies for potential sources of excess return,” says Wittman. “The ability to incorporate limited shorting allows us to capture return from our insights into underperforming companies.
”The Market Neutral Value portfolio is managed by US Value Equity Chief Investment Officer Phil Davidson and portfolio managers Michael Liss and Kevin Toney. Six investment research analysts will support the portfolio management team. The US Value Equity team is one of the longest tenured teams at American Century Investments.
“Market Neutral Value strategy is an extension of what we have been doing the past 18 years on the US Value Equity team,” says Davidson. “We will seek to exploit differences in stock prices by being long and short in stocks within the same sector, industry and market capitalisation.”
The use of alternative investment strategies by financial intermediaries is widespread and growing. American Century Investments recently conducted new research about alternative investments: 2011 Financial Professionals Alternative Investments Study. It showed 80 per cent of study participants report they are currently using alternative investments with their clients, while an astounding 95 per cent have some level of experience with these strategies. And, among those currently using alternative strategies, 55 per cent plan to increase use in the next year.
Following are details on each of the three new alternative strategies.
Core Equity Plus: Core Equity Plus is a 130/30 version of the American Century Equity Growth Fund, a large core fund. The strategy will take long positions in securities that managers believe will appreciate and short positions in securities that managers believe will underperform. Specifically, the fund is long 100 per cent of its assets, shorts 30 per cent of the value of the portfolio, and uses the proceeds of the short sale to invest an additional 30 per cent in long investments. By extending the long-only mandate with limited shorting, American Century Investments seeks to enhance portfolio efficiency and achieve higher excess return without increasing market risk.
The fund’s investment strategy utilises quantitative management techniques in a disciplined, repeatable process. Stocks representing a broad range of larger domestic companies, approximately 1,200-to-1,600 securities, are ranked from most attractive to least attractive. This is determined by using a stock selection model that combines measures of a stock’s relative valuation, its growth and momentum characteristics, and quality.
Disciplined Growth Plus: Disciplined Growth Plus is a 130/30 version of the American Century Disciplined Growth Fund, a large growth fund. Like Core Equity Plus, this fund also uses limited shorting to enhance portfolio efficiency and obtain higher excess returns without increasing market risk.
The fund’s investment strategy utilises the same quantitative management techniques and processes as Core Equity Plus. The differences between the two portfolios are the style benchmarks for the strategies, the starting universe and the makeup of the stock ranking model. The stock ranking model includes similar measures of relative value, growth and quality as the Core Equity Plus model, but with a greater bias toward measures of growth and growth potential.
Market Neutral Value: Market Neutral Value extends the capabilities, track-record and reputation of American Century Investments current US Value Equity team.
The strategy will buy long securities that appear relatively undervalued while selling short securities that appear relatively overvalued. It will seek to maintain equal dollar amounts in long and short equity positions. Market Neutral Value will primarily utilise the stocks within American Century Investments proprietary value database, the same pool of securities used by American Century Equity Income Fund, Value Fund and Mid Cap Value Fund.
Market Neutral Value seeks to deliver an annualised return that exceeds the 90-day Treasury Bill rate, as well as lower volatility than, and correlation to, the broad equity market over a market cycle.