American Century Investments has established itself as an innovative player in the ETF space, after launching its first products in January 2018. The index-based American Century US Quality Value ETF (VALQ) and the actively managed American Century Diversified Corporate Bond ETF (KORP) are still trading today. They have $307 million and $794 million in assets under management, respectively.

Key Takeaways

  • Since entering the market in 2018, American Century has ascended to become a top 20 U.S. issuer, managing $128 billion in assets through a diverse mix of nearly 50 ETFs.
  • The quantitative, research-driven Avantis family has become a key growth engine for the firm, accounting for $120 billion in AUM led by flagship funds like AVUV and AVEM.
  • By launching the first-ever semi-transparent ETFs and offering different kinds of active management strategies, the firm has solidified its reputation as a pioneer in modern investment structures.

Since that debut, the firm has rolled steadily forward with an eye firmly focused on innovation. Today, it offers nearly 50 ETFs — a mix of actively and passively managed — with $128 billion in assets under management.

“When you look at our lineup, it’s fairly broadly diversified in both investment styles. We’ve got systematic active strategies; we have fundamental strategies; we have very highly concentrated; we have broadly diverse; we also have geographic and asset class diversification,” said Sandra Testani, American Century’s head of ETF product and strategy, in an exclusive interview at the Exchange conference.

Although its three passively managed ETFs are among its largest products, its lineup is dominated by actively managed funds. According to Testani, at least 60% of the American Century offering of actively managed ETFs has been trading for three years or more, compared with 30% of actively managed ETFs trading across U.S. markets.

“We started on this active journey many years ago,” she noted.

This year alone, ACI’s ETFs have pulled in more than $16 billion in assets, almost all of it flowing into its active suites. But the road to becoming one of the 20 largest ETF issuers in the U.S. has been anything but boring.

American Century Investment’s Bifurcated Lineup

A little more than a year after its debut, American Century made a key move that placed the firm squarely within the ranks of issuers to watch. In 2019, Eduardo Repetto, formerly co-CEO of Dimensional Fund Advisors, joined American Century to launch the Avantis line of ETFs.

The Avantis ETFs are a distinct and separate family from the rest of American Century’s lineup. Unlike the firm’s main family of ETFs, the Avantis funds have a fairly uniform methodology, with some adaptations made to accommodate specific asset classes. The approach is deeply rooted in financial theory based on empirical research from the likes of well-known names like Eugene Fama, Kenneth French, William Sharpe and Sheridan Titman.

It emphasizes companies that exhibit lower valuations and higher profitability, while tilting toward smaller size. The family also features broad coverage, essentially holding swaths of the market and making incremental active changes to slightly over- or underweight individual securities. The funds offer indexlike exposure via a quantitative approach that incorporates some manager discretion.

The Avantis family debuted with a roster of five ETFs that included international small-cap value, domestic small-cap value, international, emerging markets and broad U.S. exposures. Those original five are the largest funds in the Avantis lineup today:

Today, the Avantis ETFs number more than 30, with over $120 billion in assets under management. The equity ETFs cover a range of size segments and countries or regions, as well as a handful of socially responsible and bond strategies and several funds that offer a more intense focus on value.

Promoting Innovation

As the global pandemic was heating up, the firm made its indelible mark on the U.S. ETF industry by launching the first-ever semi-transparent actively managed ETFs, a product structure that was in the making for at least a decade. The American Century Focused Large Cap Value ETF (FLV) and the American Century Focused Dynamic Growth ETF (FDG) rolled out at the end of March that year, and each has more than $300 million in assets under management today.

The funds rely on the model for semitransparent ETFs promoted by the New York Stock Exchange. That methodology involves a daily proxy portfolio that has simliar characteristics to the actual portfolio. The fund discloses its true holdings 60 days after the close of each quarter.

Semi-transparent ETFs currently only represent a small percentage of the total ETF market more than five years later. However, American Century’s leadership in the space solidified its reputation as a firm committed to innovation and taking the lead on key trends.

A Distinguished Core Offering

American Century’s self-branded products are where the firm offers the most variation in its strategies. The lineup for this portion of ACI’s offering includes mainly actively managed funds, but also a few passively managed smart-beta strategies (mainly focused on the quality factor).

The brand’s top five funds include the following:

Compared with the quantitatively driven Avantis family, the actively managed funds under the American Century brand align more with traditional active management focused on individual security selection. While some of the Avantis funds have thousands of individual holdings, the American Century-branded ETFs with the most holdings top out at several hundred.

ACI provides optionality to investors via its self-branded ETFs, providing both passively managed and actively managed core equity exposure. Notably, however, the firm’s fixed income ETFs are exclusively actively managed. Testani points out that indexes usually overweight the issuers with the highest levels of debt, which she describes as problematic. She also indicates that the rigidity of indexes is poorly suited to the index space, as is the need to optimize exposure to the index, which introduces subjectivity to the fund.

American Century on a Unique Path

American Century’s willingness to innovate and try different approaches has marked its arc in the ETF industry. Its rollout of the Avantis strategies and its groundbreaking move into the semitransparent ETF space signal that. The result is a diversified offering across two brands that allows investors multiple paths to achieving the portfolio exposure they desire. With $128 billion in AUM ranking it among the top 20 issuers despite less than a decade in the space, the firm is also a leader in providing investor solutions.

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VettaFi LLC (“VettaFi”) is the index provider for QGRO, QINT and VALQ, for which it receives index licensing fees. However, QGRO, QINT and VALQ are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of QGRO, QINT and VALQ.

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