American Century adds convertible and preferred ETFs to active line-up

Feb 19th, 2021 | By | Category: Alternatives / Multi-Asset

American Century Investments has expanded its actively managed ETF roster with the launch of two new funds targeting convertible and preferred securities.

Edward Rosenberg, senior vice president and head of ETFs for American Century

Edward Rosenberg, Head of ETFs for American Century Investments.

The funds have listed on Cboe BZX Exchange and fully disclose holdings on a daily basis.

They are the American Century Quality Convertible Securities ETF (QCON US) and the American Century Quality Preferreds ETF (QPFF US).

Ed Rosenberg, Head of ETFs at American Century Investments, commented: “We believe an investment approach that combines quantitative and fundamental insights can address the inherent biases of the benchmark portfolio construction.

“To us, these biases are driven by the market capitalization of underlying issues and is agnostic to various fundamental and market risks, leading to unintended portfolio outcomes.”

Rene Casis, Portfolio Manager at American Century Investments, added: “These strategies attempt to improve on the passive approach to investing, offering upside potential by focusing on high-quality businesses and day-to-day monitoring of opportunities and risks. We’re excited to add these solutions to our ETF suite.”

Convertibles

The American Century Quality Convertible Securities ETF invests in US dollar-denominated convertible securities that are rated either investment-grade or high yield.

Convertible securities are hybrid debt instruments that can be converted into a pre-determined number of an issuer’s common shares. As such, they tend to have both equity and fixed income characteristics. Specifically, these securities will tend to track the issuer’s stock price when that stock price is increasing; however, they will trade more like traditional fixed income securities (i.e. valued at the present value of expected cash flows) when stock prices are low.

The fund uses a fundamental process to identify high-quality, growth-oriented companies based on measures such as sales, earnings growth, profitability, leverage, and balance sheet strength. From within this pool, the strategy selects portfolio components using quantitative metrics including price momentum, valuation, and yield relative to other convertible securities.

Portfolio holdings are weighted to achieve an optimal balance between risk and return by considering each security’s fundamental score, benchmark weight, and equity sensitivity.

Preferreds

The American Century American Century Quality Preferreds ETF, meanwhile, invests in US dollar-denominated preferred securities including preferred stock, hybrid preferreds, floating-rate preferreds, junior subordinated debt, senior unsecured debt obligations, re-packaged preferreds, and convertible securities.

Security selection is based on quantitative and fundamental metrics including liquidity, yield, credit risk, size, quality, price momentum, profitability, and leverage. The strategy aims to be benchmark aware while enhancing sector diversification as well as exposure to higher-quality credit issues.

Each fund comes with an expense ratio of 0.32%, and income is distributed on a monthly basis.

Active launches

American Century has launched a number of active ETFs over the past year.

Just last month, it introduced the American Century Low Volatility ETF (LVOL US) to offer a lower volatility portfolio of US large-cap equities.

In April 2020, it became the first asset manager to launch actively managed, semi-transparent ETFs utilizing Precidian Investments’ ActiveShares methodology. Namely, the American Century Focused Dynamic Growth ETF (FDG US) and the American Century Focused Large Cap Value ETF (FLV US).

And in July, the firm rolled out two active ESG ETFs utilizing NYSE’s Actively Managed Solution: the American Century Sustainable Equity ETF (ESGA US) and the American Century Mid Cap Growth Impact ETF (MID US).

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