American Century doubles down on semitransparent ETF lineup with ESG versions

American Century doubles down on semitransparent ETF lineup with ESG versions
The jury is still out on whether financial advisers will buy into the unique new fund wrapper
JUL 17, 2020

American Century Investments continues to test the appetite for semitransparent exchange-traded funds by launching two new products this week that focus on sustainable investing strategies.

The new funds, American Century Sustainable Equity (ESGA) and American Century Mid Cap Growth Impact (MID), are the first ETFs using the new semitransparent wrapper to employ strategies focused on environmental, social and governance issues and among the first to apply active ESG management inside an ETF.

Ed Rosenberg, senior vice president and head of ETFs at American Century, said the new funds will challenge the ESG space to step up and illustrate alpha generation.

“If you look at the ETF landscape right now, there are a lot of ESG products but they’re all the same,” he said. “We think we can bring forth a different methodology in a different structure of an active overlay with a bottom-up approach.”

American Century, which became the first asset manager to launch a semitransparent ETF when it rolled out two funds in April, is targeting a rich vein of potential by offering ESG-focused funds.

But the question remains as to whether financial advisers, as the largest buyers of ETFs, will warm to the semitransparent wrapper.

So far, the two American Century ETFs launched in April have attracted about $220 million in combined assets, which Rosenberg describes as “on the right path.”

The semitransparent ETF wrapper, which depends on exemptive relief from the Securities and Exchange Commission that allows for disclosure of the underlying portfolios only on a quarterly basis, has so far seen about a half dozen ETFs launch since April.

Because the new ETFs trade throughout the day like stocks and other ETFS, but only disclose holdings quarterly like mutual funds, they rely on a handful of technology programs that give market makers enough information about the portfolios to be able to price them accurately.

American Century launched its first two semitransparent ETFs using a model developed by Precidian Investments, which doesn’t offer any specifics on portfolio holdings on a live basis but is able to provide market makers with a live intraday net asset value for pricing purposes.

The two newer funds with the ESG focus are using a trading model developed by the New York Stock Exchange that presents market makers with a proxy basket that represents the underly portfolio.

The distinction is significant, according to Rosenberg, who said ESG investors are more particular about getting as much detail as possible about portfolio holdings.

“The proxy basket portfolio allows investors who need a little bit more information to see a little peak into the window and gain more comfort that way,” he said.

[Interested in even more ESG news? Check out InvestmentNews’ ESG Clarity US]

Todd Rosenbluth, director of mutual fund and ETF research at CFRA, acknowledged that the adoption rate for semitransparent ETFs has been slow, and said some of that might be due to the pandemic that has prevented marketing efforts to get in front of advisers to pitch these products.

“I had hoped there would have been greater adoption by now,” he said.

Rosenberg said American Century is improvising what would have been a robust marketing campaign by “doing lots of conference calls” with financial advisers.

“From March through June, I was originally scheduled to speak at 12 different conferences,” he said. “We have to adapt to the environment we’re in.”

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