American Century adds low volatility ETF to active line-up

Jan 18th, 2021 | By | Category: Equities

Kansas City-based American Century Investments has expanded its actively managed product roster with an ETF that pursues a low volatility approach to the US equity market.

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

Edward Rosenberg, Head of ETFs for American Century Investments.

The American Century Low Volatility ETF (LVOL US) has listed on NYSE Arca and comes with an expense ratio of 0.29%.

Unlike the firm’s recent launches, which utilize semi-transparent product structures, the new ETF discloses its holdings on a daily basis.

Ed Rosenberg, Head of ETFs at American Century Investments, said “We have the opportunity to offer an ETF that has the objective of tempering volatility using our proprietary active methodology.

“Because LVOL is actively managed, it will enable a nimble approach that can adapt to quantitative insights and challenging market conditions.”

The fund is benchmarked against the S&P 500 and invests primarily within the large-cap segment by targeting securities with market capitalizations greater than $2 billion.

The fund’s managers – Steven Rossi, Tsuyoshi Ozaki, and Rene Casis – use quantitative models to build a portfolio that delivers market returns with lower volatility in normal conditions while limiting losses during drawdowns.

The strategy employs a multi-dimensional approach to stock selection and risk management in a bid to overcome what American Century describes as the shortcomings of index-based low volatility strategies. It seeks out businesses with quality characteristics, such as consistent cash flows, stable operations, and strong balance sheets, and looks beyond traditional measures of price volatility by including asymmetric (i.e. downside) volatility and evaluating empirical measures of stock price risks across key dimensions such as economic segment.

“We’re emphasizing strong fundamentals in an effort to limit potential risk of speculative companies with questionable profits,” said Rosenberg. “We’re also expanding risk measures beyond volatility to capture other downside and balance sheet risks while focusing on volatility at the portfolio level as well as the individual stock level.

The ETF currently has 107 holdings and is fairly well diversified at the stock level with the largest holdings having weights of around 3%.

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

In July, the firm launched two further active ETFs, this time with ESG credentials: the American Century Sustainable Equity ETF (ESGA US) and the American Century Mid Cap Growth Impact ETF (MID US). These funds were the first to utilize NYSE’s Actively Managed Solution.

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