The Value of Using a Block Desk

Trade Large Blocks of ETFs Efficiently


Alex Kalinowski | June 2021

The Value of Using a Block Desk

There are several important criteria to consider when trading ETFs, such as the use of limit orders, market volatility, the time of day to trade or if the underlying markets are closed and, lastly, liquidity of the ETF. These considerations help the advisor execute trades for their clients in the best manner possible. Commonly, most advisors look at the on-screen liquidity, which is gauged by its average daily volume (ADV). The on-screen or secondary market liquidity is only one source of liquidity for an ETF. It is important to note that an ETF has multiple layers of liquidity, which are beyond the on-screen liquidity that trading or block desks can source to complete orders.1

The additional layers of liquidity may help advisors achieve efficient execution and pricing for large trades. The on-screen liquidity or secondary market ADV only shows liquidity for trades that have already been executed. To help you better understand the depth of the market for ETFs, the graphic below highlights three levels of liquidity:

Three levels of ETF Liquidity.

If you would like to dive deeper into the nuances of the three levels of liquidity, please read our Insights on Tools of the ETF Trade: Understanding ETF Liquidity and Trading, which highlights the layers of liquidity, timing and types of trades you should use when trading ETFs.

Below are some examples of scenarios where the on-screen liquidity was not as deep, and a trading or block desk helped execute these trades efficiently. These are block trades that were executed in domestic equity, international equity and fixed-income ETFs. The trades had minimal to no impact on the bid/ask spread, resulting in the investor having efficient execution.

Figure 1 shows a trade in American Century STOXX U.S. Quality Growth ETF (QRGO)1, a domestic equity ETF. At the time this trade was executed, QGRO had a 30-day ADV and was 20,380 shares, which is well below the block trade of 60,282 shares for a total value of $3,258,845. As you can see, the trade was executed at $54.06, at the midprice. So, with the help of the block desk, the buyer was able to capitalize on the underlying securities that were not visible on the secondary market.

STOXX® is a registered trademark of STOXX Ltd.


Figure 2 shows a similar example within a fixed-income fund, American Century Diversified Municipal Bond ETF (TAXF)2,5. This trade was for 60,627 shares at $54.64 for a total value of $3,312,659, where the 30-day ADV at the time for TAXF was 11,199. Again, the block desk was able to capitalize on the underlying liquidity in the market to execute the trade efficiently.


Figure 3 shows a trade for 311,903 shares in an international equity ETF, Avantis Emerging Markets Equity ETF (AVEM)2. The 30-day ADV at the time was 100,445 shares. The trade was executed at $63.89 for a total value of $19,927,483. This is evidence that the block desk can access the market depth not seen by the average investor.


Figure 4 is a trade in a fund that discloses holdings on a quarterly basis, American Century Focused Large Cap Value ETF3,4. The below trade occurred within the first month of inception of the fund. It was executed at $56.50 for 86,403 shares and $4,881,770 in total.


These examples show how large ETF trades can achieve quality execution in ETFs with low on-screen liquidity. It is wise to use the tools and resources available to execute sizable trades where you think there is no liquidity. Your ETF trading desk and block desk are the dependable resources to help.



ETF Trading Resources

Below are common order types with guidance related to ETF block trades as well as contacts to assist you in executing these types of trades.

Order Types Description Price Control? Guaranteed Execution? Suitable for Block Trades?
Market Buy/sell executed immediately No Yes No
Not recommended for ETF block trades or even smaller ETF trades given no price control. Guaranteed execution and speed of execution are the main benefits of Market orders.
Limit Buy/sell executed at pre-determined price Yes No Yes
Recommended for both block trades and smaller ETF trades given full price control. A buy order will only go off at the trigger price or lower, and a sell order will only go off at the trigger price or higher.
Held Buy/sell executed immediately No Yes No
A Held order is the same as a Market order and is also not recommended for ETF trades.
Market Not-Held* Order goes to a floor broker or an institutional trade desk, who has both time and price discretion for execution. This usually involves getting a block desk involved Partial Yes Yes
Recommended for large ETF trades, as the broker assesses the market to achieve efficient execution and generally request quotes from more than one ETF liquidity provider to execute at the best price.
Limit Not-Held* Order goes to a floor broker, who has time and price discretion for execution, combined with a pre-defined lower limit on sells and upper limit on buys Partial No No
Similar to Market Not-Held orders with added price control from the Limit order price protection. Also recommended for large ETF trades, with the slight risk of not being executed if the only offers from the liquidity providers are outside of the limits given to the floor broker.
Stop Pre-determined price set; once market is at or breaks through it becomes a market order Partial No No
Not recommended for large ETF trades because the order becomes a market order once the trigger price is met, putting you at risk of market moves.
Stop Limit Pre-determined price set, once market is at or breaks through it becomes a limit order Partial No Yes
Recommended for large ETF trades, as it is similar to a Stop order except it becomes a limit order after the trigger price is met, providing full price control.

 

* Most advisor platforms have institutional desk available to assist in trading securities

 

If you have questions around trade execution, please refer to tools provided above or contact the American Century Investments Capital Markets Desk at 1-833-CAP-MKTS.

Contacts Description

Broker/Dealer ETF Trading Desk

  • Advisors that are on Institutional platforms have access to Block desks for ETF orders.  These desks provide trade guidance, execution expertise, and advice on trading strategies.
  • The contact information for block trading desks can be found on the platform’s website or through the platform’s advisory help center.

Issuer’s Capital Markets Desk

  • If you would like to discuss the execution for a trade and receive guidance from the Issuer’s Capital Markets desk directly, you can always reach out to them.

3

This ETF is different from traditional ETFs.

Traditional ETFs tell the public what assets they hold each day. This ETF will not. This may create additional risks for your investment. Specifically:

-You may have to pay more money to trade the ETF's shares. This ETF will provide less information to traders, who tend to charge more for trades when they have less information.
-The price you pay to buy ETF shares on an exchange may not match the value of the ETF's portfolio. The same is true when you sell shares. These price differences may be greater for this ETF compared to other ETFs because it provides less information to traders.
-These additional risks may be even greater in bad or uncertain market conditions.

The differences between this ETF and other ETFs may also have advantages. By keeping certain information about the ETF secret, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF's performance. If other traders are able to copy or predict the ETF's investment strategy, however, this may hurt the ETF's performance.

For additional information regarding the unique attributes and risks of this ETF, see the additional risk discussion at the end of this material.

Contact the American Century Investments Capital Markets Desk

Exchange Traded Funds (ETFs) are bought and sold through exchange trading at market price (not NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns.

You should consider a fund's investment objectives, risks, and charges and expenses carefully before you invest. The fund's prospectus or summary prospectus, which can be obtained at AmericanCenturyETFs.com, contains this and other information about the fund, and should be read carefully before investing.

You should consider the fund's investment objectives, risks, and charges and expenses carefully before you invest. The fund's prospectus or summary prospectus, which can be obtained by visiting avantisinvestors.com or calling 1-833-928-2684, contains this and other information about the fund, and should be read carefully before investing. Investments are subject to market risk.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.


 

 

This fund is not actively managed and the portfolio managers do not attempt to take defensive positions under any market conditions, including declining markets. The portfolio managers also do not generally add or remove a security from the fund until such security is similarly added or removed from the underlying index. Therefore, the fund may hold an underperforming security or not hold an outperforming security until the underlying index reacts. This may result in underperformance compared to the market generally. In addition, there is no assurance that the underlying index will be determined, composed or calculated accurately. While the index provider provides descriptions of what the underlying index is designed to achieve, the index provider does not guarantee the quality, accuracy or completeness of data in respect of its indices, and does not guarantee that the underlying index will be in line with the described index methodology. Gains, losses or costs to the fund caused by errors in the underlying index may therefore be borne by the fund and its shareholders.


 

 

This fund is an actively managed ETF that does not seek to replicate the performance of a specified index. To determine whether to buy or sell a security, the portfolio managers consider, among other things, various fund requirements and standards, along with economic conditions, alternative investments, interest rates and various credit metrics. If the portfolio manager considerations are inaccurate or misapplied, the fund's performance may suffer.


 

 

The fund is an actively managed ETF that does not seek to replicate the performance of a specified index.

This fund may invest in a limited number of companies, which carries more risk because changes in the value of a single company may have a more significant effect, either negative or positive on the fund's value.

Because the shares are traded in the secondary market, a broker may charge a commission to execute a transaction in shares, and an investor also may incur the cost of the spread between the price at which a dealer will buy shares and the somewhat higher price at which a dealer will sell shares.

The Verified Intraday Indicative Value:
 Unlike traditional ETFs, the fund does not tell the public what assets it holds each day. Instead, the fund provides a verified intraday indicative value (VIIV), calculated and disseminated every second throughout the trading day by the Cboe BZX Exchange, Inc. (Listing Exchange) or by market data vendors or other information providers. It is available on websites that publish updated market quotations during the trading day, by searching for the fund's ticker plus the extension .IV, though some websites require more unique extensions. For example, the VIIV can be found on Yahoo Finance (https://finance.yahoo.com) by typing "^FLV-IV" (for Focused Large Cap Value ETF) in the search box labeled "Quote Lookup." The VIIV is based on the current market value of the securities in the fund's portfolio on that day. The VIIV is intended to provide investors and other market participants with a highly correlated per share value of the underlying portfolio that can be compared to the current market price. To calculate the VIIV, the fund employs two separate calculation engines to provide two independently calculated sources of intraday indicative values (calculation engines). The fund then uses a pricing verification agent to continuously compare the data from both the calculations engines on a real time basis. If during the process of real time price verification, the indicative values from the calculation engines differ by more than 25 basis points for 60 consecutive seconds, the pricing verification agent will alert the advisor, and the advisor will request that the Listing Exchange halt trading of the fund's shares until the two indicative values come back into line. This "circuit breaker" is designed to prevent the VIIV from reflecting outlier prices. The specific methodology for calculating the fund's VIIV is available on the fund's website.

Portfolio Transparency Risk:
 The VIIV is intended to provide investors with enough information to allow for an effective arbitrage mechanism that will keep the market price of the fund's shares trading at or close to the underlying net asset value (NAV) per share of the fund. There is, however, a risk, which may increase during periods of market disruption or volatility, that market prices will vary significantly from the underlying NAV of the fund. Similarly, because the fund's shares trade on the basis of a published VIIV, they may trade at a wider bid/ask spread than shares of ETFs that publish their portfolios on a daily basis, especially during periods of market disruption or volatility, and therefore, may cost investors more to trade. Although the fund seeks to benefit from keeping its portfolio information secret, some market participants may attempt to use the VIIV to identify the fund's trading strategy, which if successful, could result in such market participants engaging in certain predatory trading practices that may have the potential to harm the fund and its shareholders. The fund's website will contain a historical comparison of each business day's final VIIV to that business day's NAV.

Early Close / Trading Halt Risk:
 Trading in fund shares on the Listing Exchange may be halted in certain circumstances. An exchange or market may close early or issue trading halts on portfolio securities. In times of market volatility, if trading is halted in some of the securities that the fund holds, there may be a disconnect between the market price of those securities and the market price of the fund. In addition, if at any time the securities representing 10% or more of the fund's portfolio become subject to a trading halt or otherwise do not have readily available market quotations, the fund's advisor will request the Listing Exchange to halt trading on the fund, meaning that investors would not be able to trade their shares. Also, if there is a circuit breaker event, as described above, the fund's advisor will request the Listing Exchange to halt trading. During any such trading halt, the VIIV would continue to be calculated and disseminated. Trading halts may have a greater impact on the fund than traditional ETFs because of its lack of transparency. Additionally, the fund's advisor monitors the bid and ask quotations for the securities the fund holds, and, if it determines that such a security does not have readily available market quotations (such as during an extended trading halt), it will post that fact and the name and weighting of that security in the fund's VIIV calculation on the fund's web site. This information should permit market participants to calculate the effect of that security on the VIIV calculation, determine their own fair value of the disclosed portfolio security, and better judge the accuracy of that day's VIIV for the fund. An extended trading halt in a portfolio security could exacerbate discrepancies between the VIIV and the fund's NAV.

Authorized Participant / Authorized Participant Representative Concentration Risk:
 The fund issues and redeems shares that have been aggregated into blocks of 5000 shares or multiples thereof (Creation Units) to authorized participants who have entered into agreements with the fund's distributor. (Authorized Participants). The creation and redemption process for the fund occurs through a confidential brokerage account (Confidential Account) with an agent, called an AP Representative, on behalf of an Authorized Participant. Each day, the AP Representative will be given the names and quantities of the securities to be deposited, in the case of a creation, or redeemed, in the case of a redemption (Creation Basket), allowing the AP Representative to buy and sell positions in the portfolio securities to permit creations or redemptions on the Authorized Participant's behalf, without disclosing the information to the Authorized Participant. The fund may have a limited number of institutions that act as Authorized Participants and AP Representatives, none of which are obligated to engage in creation or redemption transactions. To the extent that these institutions exit the business or are unable to proceed with creation and/or redemption orders with respect to the fund and no other Authorized Participant is able to step forward to process creation and/or redemption orders, fund shares may trade at a discount to NAV and possibly face trading halts and/or delisting. This risk may be more pronounced in volatile markets, potentially where there are significant redemptions in ETFs generally. The fact that the fund is offering a novel and unique structure may affect the number of entities willing to act as Authorized Participants and AP Representatives. During times of market stress, Authorized Participants may be more likely to step away from this type of ETF than a traditional ETF.

 

 

Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline. Lower-rated securities in which the fund invests are subject to greater credit risk, default risk and liquidity risk. If the portfolio managers’ considerations are inaccurate or misapplied, the fund’s performance may suffer.  Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. Lower-rated securities in which the fund invests are subject to greater credit risk, default risk and liquidity risk. iSTOXX® American Century® USA Quality Value Index (underlying index) is a systematic, rules-based proprietary index that is owned and calculated by STOXX® based on the STOXX® 900 Index. The underlying index aims to dynamically allocate to both quality companies with sound fundamentals and attractive valuations and companies with sustainable income. It is not possible to invest directly in an index.

iSTOXX® and STOXX® are registered trademarks of STOXX Ltd.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

The STOXX® Index is the intellectual property (including registered trademarks) of STOXX Limited, Zurich, Switzerland ("STOXX"), Deutsche Börse Group or their licensors, which is used under license. The fund is neither sponsored nor promoted, distributed or in any other manner supported by STOXX, Deutsche Börse Group or their licensors, research partners or data providers and STOXX, Deutsche Börse Group and their licensors, research partners or data providers do not give any warranty, and exclude any liability (whether in negligence or otherwise) with respect thereto generally or specifically in relation to any errors, omissions or interruptions in the STOXX® Index or its data.

Exchange Traded Funds (ETFs): Foreside Fund Services, LLC - Distributor, not affiliated with American Century Investments Services, Inc.