American Century taps DFA vets for new factor-based business

Avantis Investors has an independent look but plenty of support from American Century

Jun 26, 2019 @ 2:12 pm

By Jeff Benjamin

If there was any doubt about American Century Investments' commitment to its expansion into the exchange-traded funds space, the $168 billion asset manager has put those doubts to rest with the launch of Avantis Investors.

The new Los Angeles subsidiary of Kansas City, Mo.-based American Century officially opened its doors this week with five factor-based ETFs in registration with the Securities and Exchange Commission.

A key component of the new business and ETF lineup, which will be followed by five mutual funds employing similar strategies, is the pedigree of the executive team, which comes from Dimensional Fund Advisors.

Eduardo Repetto, who resigned as co-chief executive officer of DFA two years ago, has joined Avantis as chief investment officer. Patrick Keating, who left his role as chief operating officer at DFA two years ago, is now the CFO of Avantis. And Phil McInnis, who left his position as head of portfolio solutions at DFA two weeks ago, is the director of investments for Avantis.

Mr. Repetto, who downplayed the DFA connection and said Avantis would be hiring broadly over the next several months, said the unit is targeting financial advisers, consultants and institutional investors that appreciate low-cost, tax-efficient portfolios.

"I've been out of DFA for two years, and I've been thinking of better ways to come out with better outcomes for investors," he said. "Our investment approach at Avantis is different from American Century's investment approach and that's why there's a different brand, because it represents our approach."

The Avantis funds in registration include emerging markets equity, international equity, international small-cap value, U.S. equity and U.S. small-cap value.

The theme across all the funds, which Mr. Repetto described as "passive-active," is that they apply quantitative analysis to identify specific value opportunities inside broad market indexes. From there, the strategy weighs the benefit of any potential trade against the cost of making that trade.

"We're not tracking an index; every day we make investment decisions," Mr. Repetto said. "Keeping turnover low by comparing the benefits of the trade to the cost of the trade is absolute common sense."

Todd Rosenbluth, director of mutual fund and ETF research at CFRA, said that until the strategies begin trading and are tested in real time, what is most novel about Avantis' funds is their association with DFA.

"What is likely to help them is the leadership team, because many advisers are huge fans of the DFA approach," Mr. Rosenbluth said. "This is a way of getting access to the DFA expertise when building asset allocation strategies."

Unlike DFA, which requires advisers to have specific training to access and invest in their funds, Avantis is launching with ETFs that are available to any investor anywhere in the world.

"There are different sets of investors looking for different things," Mr. Repetto said. "There are lots of investors interested in this type of process, such as investors in Vanguard funds and [BlackRock] iShares."

The arm's-length affiliation to American Century is designed to set Avantis off as distinct from the 60-year-old asset manager's history and reputation as a more traditional mutual fund shop, Mr. Repetto said.

"American Century is a pristine brand with a long track record and history of managing money in a given way, and Avantis is a different way of managing money," he said. "We didn't want to confuse the public, so we are linked to American Century, but the offering has a different brand."

American Century chief investment officer Victor Zhang, who traced the addition of the DFA alumni to a coffee meeting with Mr. Repetto last year, underscored the marketing strategy behind the Avantis brand.

"In 60 years of managing assets, American Century is known as a U.S.-centric, equity-centric, Midwest-headquartered company," he said. "Avantis helps us address a segment of the global clientele that is looking for systematic active strategies that are low turnover, low fees and broadly diversified. And that contrasts well with all the other capabilities we have at American Century."

While Avantis is its own brand and has its own headquarters in Los Angeles, Mr. Repetto said it is far from isolated from American Century.

"We are an asset manager that is a brand inside of American Century," he said. "But we are using all the infrastructure and support of American Century."

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