American Century Investments First To Launch Semi-Transparent Active Exchange Traded Funds

News provided by

Apr 02, 2020, 09:30 ET

KANSAS CITY, Mo., April 2, 2020 /PRNewswire/ -- American Century Investments is the first asset manager to launch two actively managed, semi-transparent exchange traded funds (ETFs) utilizing Precidian Investments' ActiveShares® methodology: American Century Focused Dynamic Growth ETF (FDG)³ and American Century Focused Large Cap Value ETF (FLV)³.

The semi-transparent structure will allow American Century to deliver its actively managed investment strategies in an ETF vehicle, without the daily holdings disclosure requirement of fully transparent ETFs. The funds will be available exclusively through Cboe BZX Exchange with Citadel Securities, LLC as the lead market maker, serviced by State Street, which is both Authorized Participant Representative (APR) and custodian, and with IHS Markit as the verified intraday indicative value (VIIV) calculator.

These ETFs are different from traditional ETFs.

Traditional ETFs tell the public what assets they hold each day. This ETF will not. This may create additional risks for your investment. Specifically:

You may have to pay more money to trade the ETF's shares. This ETF will provide less information to traders, who tend to charge more for trades when they have less information.
The price you pay to buy ETF shares on an exchange may not match the value of the ETF's portfolio. The same is true when you sell shares. These price differences may be greater for this ETF compared to other ETFs because it provides less information to traders.
These additional risks may be even greater in bad or uncertain market conditions.

The differences between this ETF and other ETFs may also have advantages. By keeping certain information about the ETF secret, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF's performance. If other traders are able to copy or predict the ETF's investment strategy, however, this may hurt the ETF's performance.

For additional information regarding the unique attributes and risks of the ETF, please see the additional risk discussion at the end of this material.

"We're pleased to be the first firm to offer semi-transparent active ETFs to our clients," said Jonathan Thomas, American Century Investments' chief executive officer. "Our goal at American Century Investments has long been providing active management solutions that meet their evolving needs."

Precidian's ActiveShares® structure seeks to combine the most beneficial aspects of the traditional mutual fund with the efficiencies and flexibilities of an ETF. Precidian's patented ETF structure seeks to provide asset managers with the ability to generate excess return without daily disclosure of their proprietary strategies while simultaneously creating significant improvements in tax efficiency, manager flexibility and lower operating costs.

"This new type of ETF gives American Century one of the most diverse platforms in the industry and allows us to introduce products with our unique insights," said Ed Rosenberg, head of ETFs for the firm.

Focused Dynamic Growth (FDG) invests in stocks of early and rapid stage large-cap growth companies with the potential to increase in value over time. The fund is managed by Keith Lee, senior vice president and senior portfolio manager; Michael Li, vice president and senior portfolio manager; Prabha Ram, portfolio manager, Henry He, portfolio manager and Rene Casis, ETF portfolio manager.

Focused Large Cap Value (FLV) invests in large-cap, high-quality companies the managers believe are temporarily selling at a discount. The fund is managed by Phillip Davidson, senior vice president and executive portfolio manager; Brian Woglom, vice president and senior portfolio manager, Phil Sundell, portfolio manager, Kevin Toney, chief investment officer, Global Value Equity and senior portfolio manager, Michael Liss, vice president and senior portfolio manager and Rene Casis, ETF portfolio manager.

The firm has been at the leading edge of embracing ETF structures fostering the delivery of semi-transparent active solutions. In May of 2019, American Century, which launched its first ETFs in January 2018, was the first asset management firm to file for exemptive relief to utilize Precidian's ActiveShares methodology.

The Focused Dynamic Growth and Focused Large Cap Value ETFs join American Century's ETF suite comprised of American Century® Diversified Corporate Bond ETF (KORP), American Century® Diversified Municipal Bond ETF (TAXF), American Century® Quality Diversified International ETF (QINT), American Century® STOXX® U.S. Quality Growth ETF (QGRO)^1,2 and American Century® STOXX® U.S. Quality Value ETF (VALQ)^1,2.

Separately, American Century rolled out a series of ETFs in September 2019 through Avantis Investors, whose low-cost, diversified investment solutions are designed to fit seamlessly into investors' asset allocations. The five Avantis Investors ETF are Avantis International Small Cap Value ETF (AVDV), Avantis International Equity ETF (AVDE), Avantis Emerging Markets Equity ETF (AVEM), Avantis U.S. Equity ETF (AVUS) and Avantis U.S. Small Cap Value ETF (AVUV).

American Century Investments is a leading global asset manager focused on delivering investment results and building long-term client relationships while supporting research that can improve human health and save lives. Founded in 1958, American Century Investments' 1,400 employees serve financial professionals, institutions, corporations and individual investors from offices in New York; London; Hong Kong; Frankfurt; Sydney; Los Angeles; Mountain View, Calif.; and Kansas City, Mo. Jonathan S. Thomas is president and chief executive officer, and Victor Zhang serves as chief investment officer. Delivering investment results to clients enables American Century Investments to distribute over 40 percent of its dividends to the Stowers Institute for Medical Research, a 500-person, non-profit basic biomedical research organization. The Institute owns more than 40 percent of American Century Investments and has received dividend payments of $1.6 billion since 2000. For more information about American Century Investments, visit americancenturyetfs.com.

Exchange Traded Funds (ETFs) are bought and sold through exchange trading at market price (not NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns.

There is no guarantee the investment strategies will be successful. Investing involves risk including the possible loss of principal. Past performance is no guarantee of future results.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

¹The iSTOXX American Century U.S.A. Quality Growth/Value Index (underlying index) is a systematic, rules-based proprietary index that is owned and calculated by STOXX based on the STOXX 900 Index. The underlying index aims to dynamically allocate to both quality companies with sound fundamentals and attractive valuations and companies with sustainable income. It is not possible to invest directly in an index.

² STOXX [or iSTOXX] is a registered trademark of STOXX, Ltd.

³ FDG/FLV: actively managed ETF that does not seek to replicate the performance of a specified index.

This fund may invest in a limited number of companies, which carries more risk because changes in the value of a single company may have a more significant effect, either negative or positive on the fund's value.

Because the shares are traded in the secondary market, a broker may charge a commission to execute a transaction in shares, and an investor also may incur the cost of the spread between the price at which a dealer will buy shares and the somewhat higher price at which a dealer will sell shares.

Unlike traditional ETFs, the fund does not tell the public what assets it holds each day. Instead, the fund provides a verified intraday indicative value (VIIV), calculated and disseminated every second throughout the trading day by the Cboe BZX Exchange, Inc. (Listing Exchange) or by market data vendors or other information providers. It is available on websites that publish updated market quotations during the trading day, like Yahoo Finance (https://finance.yahoo.com), by searching for the fund's ticker plus the extension .IV, though some websites require more unique extensions. The VIIV is based on the current market value of the securities in the fund's portfolio on that day. The VIIV is intended to provide investors and other market participants with a highly correlated per share value of the underlying portfolio that can be compared to the current market price. To calculate the VIIV, the fund employs two separate calculation engines to provide two independently calculated sources of intraday indicative values (calculation engines). The fund then uses a pricing verification agent to continuously compare the data from both the calculations engines on a real time basis. If during the process of real time price verification, the indicative values from the calculation engines differ by more than 25 basis points for 60 consecutive seconds, the pricing verification agent will alert the advisor, and the advisor will request that the Listing Exchange halt trading of the fund's shares until the two indicative values come back into line. This "circuit breaker" is designed to prevent the VIIV from reflecting outlier prices. The specific methodology for calculating the fund's VIIV is available on the fund's website.

Portfolio Transparency Risk - The VIIV is intended to provide investors with enough information to allow for an effective arbitrage mechanism that will keep the market price of the fund's shares trading at or close to the underlying net asset value (NAV) per share of the fund. There is, however, a risk, which may increase during periods of market disruption or volatility, that market prices will vary significantly from the underlying NAV of the fund. Similarly, because the fund's shares trade on the basis of a published VIIV, they may trade at a wider bid/ask spread than shares of ETFs that publish their portfolios on a daily basis, especially during periods of market disruption or volatility, and therefore, may cost investors more to trade. Although the fund seeks to benefit from keeping its portfolio information secret, some market participants may attempt to use the VIIV to identify the fund's trading strategy, which if successful, could result in such market participants engaging in certain predatory trading practices that may have the potential to harm the fund and its shareholders. The fund's website will contain a historical comparison of each business day's final VIIV to that business day's NAV.

Early Close / Trading Halt Risk – Trading in fund shares on the Listing Exchange may be halted in certain circumstances. An exchange or market may close early or issue trading halts on portfolio securities. In times of market volatility, if trading is halted in some of the securities that the fund holds, there may be a disconnect between the market price of those securities and the market price of the fund. In addition, if at any time the securities representing 10% or more of the fund's portfolio become subject to a trading halt or otherwise do not have readily available market quotations, the fund's advisor will request the Listing Exchange to halt trading on the fund, meaning that investors would not be able to trade their shares. Also, if there is a circuit breaker event, as described above, the fund's advisor will request the Listing Exchange to halt trading. During any such trading halt, the VIIV would continue to be calculated and disseminated. Trading halts may have a greater impact on the fund than traditional ETFs because of its lack of transparency. Additionally, the fund's advisor monitors the bid and ask quotations for the securities the fund holds, and, if it determines that such a security does not have readily available market quotations (such as during an extended trading halt), it will post that fact and the name and weighting of that security in the fund's VIIV calculation on the fund's web site. This information should permit market participants to calculate the effect of that security on the VIIV calculation, determine their own fair value of the disclosed portfolio security, and better judge the accuracy of that day's VIIV for the fund. An extended trading halt in a portfolio security could exacerbate discrepancies between the VIIV and the fund's NAV.

Authorized Participant / Authorized Participant Representative Concentration Risk - The fund issues and redeems shares that have been aggregated into blocks of 5000 shares or multiples thereof (Creation Units) to authorized participants who have entered into agreements with the fund's distributor. (Authorized Participants). The creation and redemption process for the fund occurs through a confidential brokerage account (Confidential Account) with an agent, called an AP Representative, on behalf of an Authorized Participant. Each day, the AP Representative will be given the names and quantities of the securities to be deposited, in the case of a creation, or redeemed, in the case of a redemption (Creation Basket), allowing the AP Representative to buy and sell positions in the portfolio securities to permit creations or redemptions on the Authorized Participant's behalf, without disclosing the information to the Authorized Participant. The fund may have a limited number of institutions that act as Authorized Participants and AP Representatives, none of which are obligated to engage in creation or redemption transactions. To the extent that these institutions exit the business or are unable to proceed with creation and/or redemption orders with respect to the fund and no other Authorized Participant is able to step forward to process creation and/or redemption orders, fund shares may trade at a discount to NAV and possibly face trading halts and/or delisting. This risk may be more pronounced in volatile markets, potentially where there are significant redemptions in ETFs generally. The fact that the fund is offering a novel and unique structure may affect the number of entities willing to act as Authorized Participants and AP Representatives. During times of market stress, Authorized Participants may be more likely to step away from this type of ETF than a traditional ETF.

You should consider the fund's investment objectives, risks, charges and expenses carefully before you invest. The fund's prospectus or summary prospectus, which can be obtained by visiting Avantisinvestors.com or by calling 833-928-2684. This document contains this and other information about the fund and should be read carefully before investing.

Foreside Fund Services, LLC, Distributor, not affiliated with American Century Investment Services, Inc.