American Century unveils active floating rate income ETF

Mar 19th, 2023 | By | Category: Fixed Income

American Century Investments has launched a new actively managed fixed income ETF targeting floating-rate debt securities.

Sandra Testani, Vice President, ETF Product and Strategy, American Century Investments

Sandra Testani, Vice President, ETF Product and Strategy, American Century Investments.

The American Century Multisector Floating Income ETF (FUSI US) has been listed on NYSE Arca with an expense ratio of 0.27%.

Floating-rate bonds offer coupons that adjust to reflect changes in interest rates. Compared to traditional bonds which pay fixed coupons, this feature makes floating-rate securities far less susceptible to losing value when interest rates increase.

The new fund is managed by Charles Tan, Senior Vice President, Co-Chief Investment Officer Global Fixed Income; Peter Van Gelderen, Vice President, Senior Portfolio Manager; and Jason Greenblath, Vice President, Senior Portfolio Manager.

Collectively, the three portfolio managers have 68 years of financial industry experience.

The ETF’s primary objective is to deliver a high level of income with distributions from the fund being made to investors on a monthly basis. Its secondary objective is to achieve long-term capital appreciation.

The ETF invests across various floating rate security segments including collateralized loan obligations (CLOs), commercial mortgages, residential mortgages, corporate credit, and other similarly structured investments. Up to 35% of the portfolio may be allocated to high yield securities including bank loans and other lower-rated floating-rate debt.

American Century Investments notes that existing bank loan ETFs generally comprise sub-investment-grade securities, while CLO ETFs are generally rating-specific, limiting the flexibility to move up and down the capital structure. FUSI, however, has the flexibility to tactically adjust exposures to various floating-rate securities within both the investment-grade and high yield segments, a feature that may help the ETF enhance yield and actively reduce risk.

The portfolio managers build the ETF’s portfolio using a sector rotation approach that combines macroeconomic inputs, technical analysis of the relative value among various sectors, and fundamental research on individual securities.

American Century’s proprietary macroeconomic framework provides interest rate and duration guidelines for the fund by analyzing economic activity, inflation, and monetary policy. The sector allocation process then attempts to identify undervalued sectors of the floating-rate debt market by analyzing current and historical spreads and expected returns.

Once sector allocations are determined, the portfolio managers select individual constituents through fundamental analysis that focuses on a security’s management, credit quality metrics, event risk, and capital structure.

Commenting on the new listing, Sandra Testani, Vice President, ETF Product and Strategy, American Century Investments, said: “FUSI compliments our current ETF income offerings, the American Century Short Duration Strategic Income ETF (SDSI US) and American Century Multisector Income ETF (MUSI US), adding a floating rate product to the suite that is primarily focused on high credit quality. We believe a diversified floating rate mandate has the potential to mitigate downside risk and increase income, and we are excited to offer this on our ETF platform.”

Floating-rate debt has been a ripe segment for product development recently with PGIM Investments, BlackRock, and T. Rowe Price all bringing related actively managed ETFs to market last year.

The PGIM Floating Rate Income ETF (PFRL US), which debuted in May, comes with an expense ratio of 0.72%; the BlackRock Floating Rate Loan ETF (BRLN US), which launched in June, has an expense ratio of 0.55%; and the T. Rowe Price Floating Rate ETF (TFLR US), which was unveiled in December, costs 0.61%.

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