American Century: Evolution paves the way

American Century earned a notable distinction this year, winning Lipper Fund Family Awards for both the Overall Large Company and Equity Large Company categories. The firm owes much of that success to initiatives it started several years ago, says American Century CIO Victor Zhang. He sat down with InvestmentNews Content Strategy Studio to discuss those innovations and share what might be in store for markets in 2021. Below are a few highlights from the interview.  

IN Content Strategy Studio: 2020 was one of the most unusual market environments in history. What was American Century’s secret to navigating it?  

Victor Zhang: I think much of our success ties back to a few significant efforts we embarked on several years ago. For our equity team, on a broad basis, we made all of our strategies higher-conviction portfolios. This manifested itself in two ways. We created new focused strategies that typically hold 30-35 securities. We also trimmed back the number of holdings in our strategies that already existed.  

In addition, we created new strategies that bring our skill in security selection to less efficient markets. Some of those strategies, such as our non-U.S. small cap or global small cap, launched several years ago but they had a big coming-out party in 2020. We’ve also evolved to bring our capabilities to clients in different wrappers. We set the industry pace in launching semitransparent ETFs and transparent active ETFs.  

Finally, I think we’ve made strides in the past several years to emphasize ESG factors more heavily into our analysis of companies. At the end of 2020, more than 80% of our assets under management were in ESG integrated strategies, meaning they systematically incorporate environmental, social and governance issues into the analysis and investment decision-making process. These factors make every active investor a better decision-maker because their perspectives are wider.  

IN Content Strategy Studio: What were some of the changes for the fixed-income business?  

Victor Zhang: We have a few great things taking place. Here too, we’re focusing on security selection. We’ve strengthened our research capabilities, hiring more industry veterans over the last two years. Also, we’ve brought more collaboration and information sharing between the fixed-income investment teams. That includes our teams focusing on different markets, but also our risk, analytics and trading teams. I believe that has really helped us improve performance in 2020.   

IN Content Strategy Studio: Talk to us about navigating 2020 as a business.

Victor Zhang: There’s no playbook on how to navigate a once-in-a-hundred-year pandemic, and a tremendous market rebound. But I think we were prepared in terms of infrastructure, technology and remote connectivity. Our leaders were very engaged with their teams. I can’t stress that enough.

I also think we did a good job staying close and attentive to our clients. In an unprecedented market, where new information is driving markets in ways that are hard to anticipate, we needed to stay close, listen to what their issues and concerns are, and share our perspective in a timely way. 

IN Content Strategy Studio: Can you share your outlook for fixed-income markets for the rest of 2021?

Victor Zhang: We believe investors are under-appreciating the potential for interest rate and inflation-induced market volatility. Investors should be prepared for that in their portfolios, but as long as the Fed remains committed to its accommodative stance and committed to acting decisively if it needs to, I think investors can be comfortable the U.S. will manage through this phase. 

IN Content Strategy Studio: And what are your thoughts for equity markets?

Victor Zhang: The single biggest risk to equities is the potential for inflation and rising interest rates. Otherwise the economy is doing well in the near term and we would expect it to continue to do well as businesses and industries reopen and monetary policies provide a supportive backdrop. I expect higher employment, GDP growth and earnings growth in the U.S. and globally. Also, after growth significantly outperformed value in 2020, we would also expect more balance this year.

To read more about this year's winners, click here.