Submitted by American Century Investments
To provide additional choices for investors seeking actively-managed Environmental, Social and Governance (ESG) strategies in a lower-cost ETF vehicle, American Century Investments recently launched two active ESG ETFs utilizing the New York Stock Exchange (NYSE) AMSSM (Actively Managed SolutionSM), the first-time use of the new active ETF structure. Geared to financial professionals, American Century Sustainable Equity ETF (ESGA) and American Century Mid Cap Growth Impact ETF (MID), with total expense ratios of 0.39% and 0.45%, respectively, will use the global asset manager’s time-tested stock selection processes with an ESG overlay.
These ETFs are different from traditional ETFs.
Traditional ETFs tell the public what assets they hold each day. These ETFs will not. This may create additional risks for your investment. For example:
The differences between these ETFs and other ETFs may also have advantages. By keeping certain information about the ETFs secret, these ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETFs’ performance. If other traders are able to copy or predict the ETFs’ investment strategy, however, this may hurt the ETFs’ performance.
For additional information regarding the unique attributes and risks of these ETFs, see the additional risk discussion at the end of this material.
“We believe these new ESG solutions offer investors the ‘best of both worlds:’ the alpha potential of active management with the advantages of ETFs, including low costs, tax efficiency and liquidity,” said Ed Rosenberg, head of ETFs for the firm. “This continues the next evolution of the ETF industry, and it expands opportunities for clients by enabling access to managers and strategies that had previously not been available, particularly in an ESG strategy.”
The launch of American Century Sustainable Equity ETF (ESGA) and American Century Mid Cap Growth Impact ETF (MID) comes on the heels of the spring launch of American Century Focused Large Cap Value ETF (FLV) and American Century Focused Dynamic Growth ETF (FDG), the first two semi-transparent active ETFs in the industry.
The new ETFs enable the firm to dovetail its active management heritage with its unique perspective on ESG and impact investing, according to Jonathan Thomas, American Century Investments’ chief executive officer.
“In many respects, American Century remains a natural destination for investors wanting to have a positive impact on society by including actively managed ESG ETF strategies in their portfolios,” Thomas said. “Our ESG solutions continue to grow, while our ownership model results in more than 40 percent of our annual profits in the form of dividends being directed to funding medical research.”
American Century Sustainable Equity ETF (ESGA) invests in large-cap stocks with improving business fundamentals and sustainable corporate behaviors. The portfolio managers take an ESG leaders or “best-in-class” approach to ESG integration by seeking to invest primarily in companies they believe manage ESG risks and opportunities better than their sector peers. The portfolio is permitted to invest in all sectors or industries (excluding tobacco) but intentionally seeks to have a larger weight, relative to the S&P 500, in companies viewed as ESG leaders in their sectors while avoiding or holding an underweight position in companies viewed as ESG laggards. The fund is managed by Gregory Woodhams, CFA, Joseph Reiland, CFA, Justin Brown, CFA, Robert Bove and Rene Casis.
American Century Mid Cap Growth Impact ETF (MID), the first and only active ESG ETF in its category, invests in high-quality mid-cap growth-oriented companies believed to offer attractive investment returns and positive impact on society. Managers use a top-down and bottom-up stock selection process utilizing proprietary fundamental research to invest in a portfolio of primarily U.S. mid cap companies exhibiting durable business improvement underpinned by long-term thematic drivers. The portfolio management team creates a macro and bottom-up investment thesis for each holding and using a risk-aware framework, constructs a portfolio that emphasizes stock selection and alignment with UN Sustainable Development Goals (SDGs). The fund is managed by Rob Brookby, Nalin Yogasundram and Rene Casis.
The ETFs utilizing the NYSE AMSSM will provide daily disclosures of a “proxy portfolio” with different composition and weightings than the fund’s actual holdings. The proxy portfolio reflects the economic exposures and risk characteristics of the ETF’s actual portfolio. The proxy portfolio closely replicates the intraday performance of the actual fund while mitigating the risk of front-running and other activities potentially detrimental to an actively managed ETF and its investors.
The funds will be primary listed on NYSE Arca, Inc. with Citadel Securities, LLC as the lead market maker and State Street as the custodian.
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.
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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 americancentury.com, contains this and other information about the fund, and should be read carefully before investing.
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.
These funds are actively managed ETFs that do not seek to replicate the performance of a specified index. To determine whether to buy or sell a security, the portfolio managers consider, among other things, various fund requirements and standards, along with economic conditions, alternative investments, interest rates and various credit metrics. If the portfolio manager considerations are inaccurate or misapplied, the fund’s performance may suffer.
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.
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.
Important Disclosures – MID, ESGA
MID is classified as non-diversified. Because it is non-diversified, it may hold large positions in a small number of securities. To the extent it maintains such positions; a price change in any one of those securities may have a greater impact on the fund’s share price than if it were diversified.
A strategy or emphasis on environmental, social and governance factors (“ESG”) may limit the investment opportunities available to a portfolio. Therefore, the portfolio may underperform or perform differently than other portfolios that do not have an ESG investment focus. A portfolio’s ESG investment focus may also result in the portfolio investing in securities or industry sectors that perform differently or maintain a different risk profile than the market generally or compared to underlying holdings that are not screened for ESG standards.
Proxy Portfolio Risk - The goal of the Proxy Portfolio is, during all market conditions, to track closely the daily performance of the Actual Portfolio and minimize intra-day misalignment between the performance of the Proxy Portfolio and the performance of the Actual Portfolio. The Proxy Portfolio is designed to reflect the economic exposures and the risk characteristics of the Actual Portfolio on any given trading day.
The Proxy Portfolio methodology is novel and not yet proven as an effective arbitrage mechanism. The effectiveness of the Proxy Portfolio as an arbitrage mechanism is contingent upon, among other things, the fund’s factor model analysis creating a proxy portfolio that performs in a manner substantially identical to the performance of the fund’s actual portfolio. While the Proxy Portfolio may include some of the fund’s holdings, it is not the fund’s Actual Portfolio. ETFs trading on the basis of a published Proxy Portfolio may exhibit wider premiums and discounts, bid/ask spreads, and tracking error than other ETFs using the same investment strategies that publish their portfolios on a daily basis, especially during periods of market disruption or volatility. Therefore, shares of the fund may cost investors more to trade than shares of a traditional ETF.
Premium/Discount Risk - Publication of the Proxy Portfolio is not the same level of transparency as the publication of the full portfolio by a fully transparent active ETF. Although the Proxy Portfolio is intended to provide investors with enough information to allow for an effective arbitrage mechanism that will keep the market price of the fund at or close to the underlying net asset value (NAV) per share of the fund, there is 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. This means the price paid to buy shares on an exchange may not match the value of the fund’s portfolio. The same is true when shares are sold.
Trading Issues Risk - If securities representing 10% or more of the fund’s Actual Portfolio do not have readily available market quotations, the fund will promptly request that the Exchange halt trading in the fund’s shares. Trading halts may have a greater impact on this fund compared to other ETFs due to the fund’s nontransparent structure. If the trading of a security held in the fund’s Actual Portfolio is halted, or otherwise does not have readily available market quotations, and the Advisor believes that the lack of any such readily available market quotations may affect the reliability of the Proxy Portfolio as an arbitrage vehicle, or otherwise determines it is in the best interest of the fund, the Advisor promptly will disclose on the fund’s website the identity and weighting of such security for so long as such security’s trading is halted or otherwise does not have readily available market quotations and remains in the Actual Portfolio.
Authorized Participant Concentration Risk - Only an authorized participant may engage in creation or redemption transactions directly with the fund. The fund may have a limited number of institutions that act as authorized participants. 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 net asset value (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. During times of market stress, Authorized Participants may be more likely to step away from this type of ETF than a traditional ETF.
Actively Managed SolutionSM, AMSSM is a service mark of NYSE Group, Inc. or its affiliates (“NYSE”) and has been licensed for use by American Century Investment Management, Inc. (“Licensee”) in connection with American Century Sustainable Equity ETF and American Century Mid Cap Growth Impact ETF (the “Funds”). Neither Licensee nor the Funds are sponsored, endorsed, sold or promoted by NYSE. NYSE makes no representations or warranties regarding Licensee or the Funds or the ability of the AMSSM to track the intra-day performance of any fund.
NYSE MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO AMSSM OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL NYSE HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Alpha is typically used to represent the value added or subtracted by active investment management strategies. It shows how an actively managed investment portfolio performed compared with the expected portfolio returns produced simply by benchmark volatility (beta) and market changes. A positive alpha shows that an investment manager has been able to capture more of the upside movement in the benchmark while softening the downswings. A negative alpha means that the manager’s strategies have caught more benchmark downside than upside.
Important Disclosures – FLV, FDG
FLV and FDG 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.
The Verified Intraday Indicative Value – 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, by searching for the fund’s ticker plus the extension .IV, though some websites require more unique extensions. For example, the VIIV can be found on Yahoo Finance (https://finance.yahoo.com) by typing “^FLV-IV” (for Focused Large Cap Value ETF) or “^FDG-IV” (for Focused Dynamic Growth ETF) in the search box labeled “Quote Lookup.” 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.
Foreside Fund Services, LLC, Distributor, not affiliated with American Century Investment Services, Inc.
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American Century Investments® is a global asset manager focused on delivering investment results and building long-term client relationships while supporting research that can improve health and save lives. It’s how we and our clients together Prosper With Purpose.™
Every day people are increasingly focused on investing to make the world a better place for themselves, their families, their organizations and the world at large. It is possible to live a more meaningful and impactful life and give back something that’s more valuable than money. When you invest with us, you can also invest in the future of others and have the potential to impact the lives of millions. That’s possible because of the distinct relationship with the Stowers Institute for Medical Research, which owns more than 40% of American Century Investments. Our dividend payments provide ongoing financial support for the Institute’s work of uncovering the causes, treatments and prevention of life-threatening diseases, like cancer. With responsible investing firmly rooted in our DNA, American Century’s focus on ESG (Environment, Social, and Governance) factors is integral to our corporate citizenship and business model.
Together we can become a powerful force for good... it’s like nothing you’ve seen before from an investment management firm.
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