American Century Investments has partnered with a division of Nomura Asset Management to launch a fully transparent, actively managed high-yield bond ETF.
Edward Rosenberg, Head of ETFs for American Century Investments.
The American Century Select High Yield (AHYB US) has been listed on NYSE Arca and has come to market with $20 million in assets.
The fund is sub-advised by Nomura Corporate Research and Asset Management (NCRAM), Nomura’s sub-investment-grade credit boutique which was founded in 1991.
David Crall, CEO and CIO of NCRAM, leads the ETF’s day-to-day operations and is supported by NCRAM portfolio managers Amy Yu Chang, Stephen Kotsen, and Derek Leung as well as American Century portfolio manager Rene Casis.
The ETF follows the same investment philosophy and strategy as the $1.2 billion American Century High-Income Fund. This mutual fund has slightly outperformed the ICE BofA US High Yield Constrained Index over the past five years, delivering an annual return of 6.47% compared to 6.33% for the benchmark.
Performance is notably stronger over a shorter time horizon, however, with the fund returning 13.19% over the past year compared to 11.46% for the benchmark.
Investment approach
The strategy typically targets securities at the top end of the high-yield spectrum, such as those rated BB or B. It may also invest in preferred securities, convertible securities, and cash and cash equivalents.
The strategy is unrestricted in its allocation across maturities but will generally focus on debt that matures within three to ten years.
Security selection is driven by NCRAM’s bottom-up analysis which aims to identify companies that can carry debt loads through different economic cycles. Target firms include those that demonstrate the ability to generate strong, sustainable cash flows which may enable them to decrease leverage and improve their ratings. The managers will also consider an issuer’s financial history, condition, and management quality.
NCRAM also utilizes a top-down investment overlay to identify high-yield segments that they believe are undervalued relative to the rest of the market. This assessment focuses on current and anticipated interest rates, economic conditions, and expected inflation.
Based on the American Century High-Income Fund as of September month-end, the strategy had a 30-day SEC yield of 3.79% and an effective duration of 3.90 years.
Major credit allocations were to bonds rated B (39.9%), BB (36.2%), and CCC (15.1%). Notable sector exposures included energy (17.0%), leisure (9.7%), basic industry (8.4%), healthcare (7.3%), media (6.7%), and services (5.7%).
The ETF comes with an expense ratio of 0.45%. Distributions are made on a monthly basis.
Ed Rosenberg, Head of ETFs at American Century Investments, commented: “In the current environment where investors are looking for robust yield, we are excited to now offer our high-yield product as an ETF with our strategic partners at Nomura. We feel this is a way we can continue striving to meet client demand for high income in this low yield environment.”
David Crall, CEO and CIO at Nomura Corporate Research and Asset Management, added: “We are thrilled to provide another fixed income solution to help meet client demand. This product will give us an opportunity to invest in relatively higher credit quality high yield bonds where the team believes there tend to be fewer defaults, lower volatility, and improved liquidity.”