Use a Targeted ETF Strategy to Unearth Nascent Growth Ideas

Investors can use exchange traded funds to unearth the growth-oriented companies driving the world forward.

In the recent webcast, Why Innovative Growth Can Prevail Across Macro Environments, Sandra Testani, Vice President, ETF Product and Strategy, American Century Investments, highlighted the actively managed American Century Focused Dynamic Growth ETF (FDG), which is designed to invest in early-stage, sustained high-growth companies, with a competitive advantage and high profitability, growth, and scalability.

“What differentiates our team’s approach is the way we view companies in the investment universe. You see our analysis framework looks at companies by their phase of growth,” Testani said.

“In the early growth phase the growth rate is highest and as the company progresses in its fundamentals the rate incrementally slows. In the last phase, maturity-decline, the company is faced with reinvigorating growth or risk the market shrinking their capitalization,” she added.

Testani noted that FDG focuses on companies earlier in their phase of growth lifecycle and that the ETF benefits from the above-average compounding and potential for wealth creation over time.

Prabha Ram, Portfolio Manager, American Century Investments, argued that good businesses become good stocks by incorporating acceleration in fundamental business trends, positive relative strength, and attractive valuation. The American Century philosophy is based on investing in quality, sustainable growth companies with durable competitive advantages and prioritizing long-term fundamentals where the market is less efficient.

Specifically, American Century’s fundamentally driven, risk-managed investment process kicks off through a proprietary multi-factor model that ranks stocks based on fundamental acceleration, relative strength, earnings quality, and valuations. Deep fundamental research is then conducted to identify and confirm quality of the company and financials; drivers of acceleration; sustainability of growth and profitability; and ESG risks. Lastly, the team constructs a portfolio emphasizing stock selection subject to liquidity constraints, risk-management guidelines, and an aggressive growth performance contour.

The resulting American Century Focused Dynamic Growth ETF portfolio is then comprised of disruptive innovators across a range of industries. For example, DocuSign Inc. is a pioneer in the e-signature market. Its cloud-based platform allows companies to digitize all agreements, the approval process workflow, and transactions in over 180 countries.

Tesla, Inc. sells electric vehicles, solar energy generation, and energy storage products. Its automotive products include the Model 3, Model Y, Model S, and Model X.

The Boston Beer Company, Inc. is an alcoholic beverage company. The Company’s brands include Samuel Adams, Twisted Tea, Truly Hard Seltzer, Angry Orchard Hard Cider, Dogfish Head Craft Brewery, Wild Leaf Hard Tea, and Tura Alcoholic Kombucha, as well as other local craft beer brands.

Additionally, Square operates a seller ecosystem that allows customers to start, run, and grow a fully omnichannel business. It also operates a separate consumer ecosystem through the Square Cash App that allows individuals to send, spend, and save money.

The strategists also pointed out that stock selection has been the primary driver of performance, as the selection process has been a positive contributor to excess return in all time periods.

Financial advisors who are interested in learning more about innovative growth ideas can watch the webcast here on demand.