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Ed Rosenberg, American Century

American Century Investments is fast off the block with non-transparent ETFs


Fund management giant American Century Investments has USD170 billion under management and stepped into the world of ETFs just two years ago, and now has 10 ETFs and close to USD1 billion under management.

Fund management giant American Century Investments has USD170 billion under management and stepped into the world of ETFs just two years ago, and now has 10 ETFs and close to USD1 billion under management.

Ed Rosenberg, senior vice president and head of ETFs at the firm, explains that American Century Investments is an active manager, founded in 1958, with the aim of outperforming relevant benchmarks using independent thinking.

That approach has continued with its ETF business as American Century Investments has licensed not one but two different non-transparent ETF structures from NYSE and Precidian to launch their active ETFs in the new format.

Rosenberg confirms that the four new products will be Focused Dynamic Growth and Focused Large Cap Value available under the Precidian structure, plus the Sustainable Equity Fund, currently only available as a mutual fund, and a new product, a Mid Cap Growth Impact fund which will be available through the NYSE structure.

“Our clients were asking for ETFs,” Rosenberg explains of the firm’s entry into the ETF sector two years ago. “Lots of advisers and clients use and prefer ETFs and we were meeting our clients’ needs and demands.”

American Century has historically been an active investment shop and the new non or semi-transparent ETF structure allows them to run active portfolios within the ETF format.

“In a transparent, active ETF portfolio it is more difficult because people could be free riding or front running our portfolios,” Rosenberg says. “It’s not a big deal when funds are smaller but as they get bigger it can become an issue.”

The Precidian products are almost ready for market and Rosenberg is hopeful that they will be out this quarter. The NYSE products should be available third quarter.

Precidian does not publish any of its holdings, while the NYSE structure uses a proxy basket that shields the actual portfolio at the heart of the ETF, not listing the actual holdings every day.

“The benefit of that is that these are more concentrated portfolios so we are not sharing when we are trading in and out of something,” Rosenberg says. “And the idea is that these portfolios have a higher alpha generation policy so if someone is trading ahead of you, it could hurt the performance of the fund.”

The proxy basket will literally use a proxy, such as Google for Amazon, to keep the actual portfolio private.

“We can’t tell what clients will actually want,” Rosenberg says. “To determine that it makes sense have more than one structure at your disposal.”

The Shielded Alpha solution offered by another firm in the non-transparent ETF arena, shows all the holdings but different weightings, which did not suit American Century. 

“It gives you an idea of what everything in the portfolio is which was what we didn’t want.”

The process of being one of the first to launch these new products has not been too painful, Rosenberg says.

“Anytime you are first you discover new things along the way which no one knows, so it’s been a process of setting up for everyone else who comes after,” he says.

“There are always good things and bad things. I would like it to be out by now and trading, but that is the drawback when your time frame becomes more unpredictable but we are happy with how they came out.”

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