American Century Investments announced today that it was launching 2 new ESG-themed active ETFs. The new ETFs will be the first of their kind to use the New York Stock Exchange (NYSE) Actively Managed Solution (AMS), a new active ETF structure.
The new ETF structure has several differences from traditional ETFs, most notably the use of an actively managed stock selection process. They also differ in terms of transparency. While traditional ETFs’ holdings are available to the public on a daily basis, the active ETFs’ holdings are not. According to American Century, the new ETFs are geared towards financial professionals.
Ed Rosenberg, Head of ETFs, said:
“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. 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 new products being launched are the American Century Sustainable Equity ETF (ESGA) and American Century Mid Cap Growth Impact ETF (MID).
American Century Sustainable Equity ETF will invest in large-cap stocks with improving business fundamentals and sustainable corporate behaviors. According to American Century, the fund’s 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’s mandate enables investment in all sectors and industries, excluding tobacco. The fund will look to allocate a larger weight, relative to the S&P 500, in companies viewed as ESG leaders in their sectors while underweighting or avoiding 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 is the first and only active ESG ETF in its category, according to the firm. The fund will invest in high-quality mid-cap growth-oriented companies believed to offer attractive investment returns and positive impact on society. American Century stated that the fund’s 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.
Jonathan Thomas, American Century Investments’ Chief Executive Officer said:
“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. 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.”
Each day, the ETF will publish a proxy portfolio, designed to help trading in shares of the ETF. The proxy portfolio will have different composition and weightings than the fund’s actual holdings, but reflects the economic exposures and risk characteristics of the ETF’s actual portfolio. According to the firm, 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.