ETFs Unscripted

By Edward Rosenberg and Sandra Testani

Join us for the next ETF Industry Update with Edward Rosenberg and Sandra Testani

February 9, 2022, 4:00 ET    Register Now

September 1, 2021, call highlights

August ETF flows remained robust1

  • Net new flows into ETFs reached $60 billion in August, bringing the year-to-date total to nearly $575 billion. 
  • Approximately half of the month’s flows went into large-cap equity ETFs. And for the first time in several months, flows into value and growth ETFs were positive.
  • Other ETF categories, including fixed-income (corporate, government and TIPS) and ESG, also experienced inflows. Energy ETFs represented the only category experiencing outflows for the month. 

This month’s focus: ETFs and Taxes

  • Spending bills working their way through Congress contain provisions to hike U.S. tax rates.
  • For example, Americans face a potential increase in the top marginal income tax rate from 37% to 39.6%. The top capital gains rate may jump from 20% to 39.6%.
  • Furthermore, high-income households may lose the ability to step up their cost basis on capital gains of more than $1 million.
  • While we don’t yet know how all of this will pan out, the prospect of higher taxes is prompting investors to consider tax-advantaged products and strategies.

  • Tax-loss harvesting is the process of using portfolio losses to offset portfolio gains, which may result in a lower overall tax liability.
  • Investors can use their realized losses to offset capital gains or ordinary income, up to $3,000 in a single year for joint filers ($1,500 for single filers). Investors may carry forward any additional losses indefinitely.
  • To take advantage of tax-loss harvesting, you must avoid a wash sale by not owning the losing investment for at least 30 days. That is, once you sell a security at a loss, you can’t purchase the same or “substantially identical” security within 30 days (before or after the sale).
  • Tax-loss harvesting is difficult to implement when the stock market has remained on an extended rally. However, advisors can sift through older lots of securities in search of potential losses to offset current gains. American Century Investments offers a proprietary tool that can help identify portfolio losses. 

  • ETFs pay capital gains, despite some myths to the contrary. However, the percentage of equity and fixed-income ETFs that pay capital gains is low—on an absolute basis and compared with other investment alternatives. And when ETFs do pay gains, those gains tend to be lower than gains paid by comparable mutual funds and other portfolios.
  • Most ETF managers (including American Century) provide estimates of their annual capital gains distributions each October. If you want to avoid those gains before they’re paid (typically in December), you can sell the ETF.
  • But remember, selling your ETF shares may trigger a capital gain on that sale. So you’ll have to decide if taking that gain makes more sense than holding the shares through the distribution period. Whether the fund is paying short-term (higher tax rate) or long-term (lower tax rate) gains also is a factor worth considering.
  • When you review capital gain estimates, it’s helpful to consider them as a percentage of the fund’s NAV, rather than dollars. For example, if a fund’s NAV is $15 and the capital gain is $2 per share, the gain is 13% of the share price. But for a fund with an $80 NAV paying that same $2-per-share capital gain, the gain is only 2.5% of the share price.

  • The tax efficiency of ETFs largely stems from the process of creating and redeeming ETF shares. Many ETFs require authorized participants to create and redeem shares “in kind,” or to exchange ETF shares for a basket of securities rather than cash.
  • This allows the ETF portfolio manager to avoid selling securities to raise cash to meet redemptions, thus preventing capital gains distributions.
  • On the other hand, mutual fund portfolio managers may have to sell securities to raise cash at the end of the day. Therefore, redemptions may pass along unsolicited capital gains to all shareholders in the fund.

  • Vehicle choice is a critical component of portfolio construction. We believe ETFs have historically proven to be more tax efficient than other vehicles.
  • Our research indicates ETFs have distributed capital gains less frequently and at lower amounts than comparable mutual funds. This applies to equity, fixed-income and active mutual funds versus their respective ETF counterparts.
  • Because they tend to pay larger and/or more frequent capital gains, mutual funds may make more sense for retirement or other tax-advantaged accounts. Meanwhile, ETFs may be the more appropriate vehicle for taxable investment accounts.

 1ETF flow data per Bloomberg.

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August 4, 2021, call highlights

Year-to-date ETF flows surpass 2020’s record level1

  • Net new flows into ETFs set a record in 2020, topping $500 billion for the year. In 2021, it took only seven months for flows to surpass the $500 billion mark. Through July 2021, year-to-date net new ETF flows totaled nearly $520 billion.
  • Year to date through July, large-cap equity ETFs took in $209 billion, the largest share of all categories. Despite experiencing outflows in July, net new flows into value ETFs reached $45 billion year to date. Inflows returned to growth ETFs in July, and the year-to-date intake turned positive, reaching nearly $2 billion.
  • Flows into fixed-income ETFs totaled $60 billion through the first seven months of 2021. Approximately $40 billion of that money flowed into shorter-duration strategies. TIPS and muni ETFs also continued to experience robust inflows.
  • ESG-oriented ETFs remained popular, taking in nearly $53 billion year to date. 

This month’s focus: Fixed-income ETFs

  • Relatively low expense ratios and capital gains distributions are primary reasons investors choose fixed-income ETFs versus other alternatives.
  • Daily liquidity and transparency are additional benefits of fixed-income ETFs. Investors can easily see the bonds that comprise the portfolio, and this transparency can help investors meet their yield and duration objectives.
  • With fixed-income ETFs, investors have easy access to a variety of bonds and bond types, making it much easier to own versus buying and selling individual bonds.

  • The size and composition of broad fixed-income indices make active management more attractive. For example, the Bloomberg Barclays U.S. Aggregate Bond Index, a common measure of the U.S. bond market, contains almost 10,000 bonds. It’s nearly impossible for an ETF to own all the securities represented in the index. In fact, owning even 60% to 70% of the index would be a big challenge for most ETFs.
  • Passive ETFs seek to replicate the index and its performance by investing in a sample of index securities. But choosing that sample of securities requires active decision-making. So, because there’s active decision-making in passive portfolios, it may make more sense to own an active portfolio that seeks to outpace, rather than replicate, the index.
  • Active fixed-income ETFs can adjust portfolio holdings to potentially generate higher returns and higher yields than the index. They also may provide better downside risk management by adjusting duration as rates rise.
  • Additionally, in today’s climate of low rates and tight spreads, research-based security selection may offer advantages. It can help portfolio managers avoid high-risk securities and focus on bonds with attractive valuations and the potential for benchmark-beating returns and credit rating upgrades.

  • Every ETF basically trades the same way. It’s important to remember the volume of an ETF is what has already traded. And it has nothing to do with the liquidity of the ETF; it only shows what's happened in the past.
  • You can trade any ETF in large amounts, but you need to use the right path or resources. It's important to trade correctly with fixed-income portfolios. The margin of error and the price movement are much less than in the equity market, so securing an advantage becomes more challenging.
  • Using a block desk provides the opportunity to get a better price than what’s available in the market. It doesn't guarantee a pricing advantage, but even gaining a slight advantage on a fixed-income trade can add to returns and yield over the long run.

  • Spreads are part of the ETF equation, and investors should have realistic expectations about spread amounts.
  • Spreads reflect the underlying securities—and they’re generally higher for bonds versus stocks. Creation fees and market maker profits are also components of the spread.
  • Market makers strive for fair, efficient pricing, but there may be opportunities for improvement. Leveraging the right resources, including the block desk, may help tighten the spread. It may not always happen, but it’s worth a try, particularly with larger trades.

  • Active management and portfolio turnover generally do not have an impact on an ETF’s tax efficiency. A portfolio’s tax efficiency really depends on the portfolio manager’s efforts at mitigating gains throughout the year.  
  • Portfolio managers can take small losses throughout the year. That way, when a manager exits an appreciated security, the portfolio already has some losses built in to offset the gain.
  • Portfolio managers can also take advantage of redemptions as they occur, ridding the portfolio of low-cost-basis securities. 

  • American Century offers seven fixed-income ETFs. We also have a convertibles securities ETF and a preferred securities ETF.
  • Our seven fixed-income ETFs focus on multisector income, corporate bonds, core intermediate bonds, core short bonds, municipal bonds (two strategies) and emerging markets debt.
  • These ETFs help investors pursue total return and income objectives.

1 Bloomberg

June 2, 2021, call highlights

Investors keep ETF flows on record-setting pace

  • ETF flows topped $65 billion in May, bringing the year-to-date total to nearly $400 billion. Five months into 2021, year-to-date ETF flows are close to the record total for all of 2020, which was $500 billion.
  • Equity ETFs (U.S. and non-U.S.) continued to garner robust investor interest, taking in $42 billion for the month. In terms of style, the growth-to-value rotation continued. Investors poured $9 billion into value-oriented equity ETFs, bringing the year-to-date total to $37 billion. So far this year, growth equity ETFs experienced outflows of approximately $5 billion.
  • Flows into fixed-income ETFs remained robust, totaling $16 billion in May. Approximately 75% of the fixed-income intake favored U.S. ETFs.
  • ESG-oriented ETFs took in nearly $6 billion in May, bringing the year-to-date total to approximately $22 billion. Meanwhile, thematic ETFs experienced outflows for the first time this year. Commodities ETFs took in $5 billion in May, but year-to-date outflows total more than $6 billion.

This month’s focus: Dispelling ETF myths

  • Unlike trading volumes for individual stocks, ETF trading volumes are not good indicators of liquidity. This is largely due to the ability of an ETF to issue or withdraw shares according to supply and demand dynamics among investors.
  • An ETF’s underlying securities are the prime drivers of the ETF’s liquidity.
  • It’s important to look beyond trading volume and on-screen indicators of ETF liquidity, which usually are misleading. The volume presented on the screen indicates what already has traded, not what could have traded. Bottom line: ETFs are liquid, and data on trading volumes do not indicate liquidity.

  • Share volume increases dramatically in lower-priced ETFs. The lower the share price, the easier it is to demonstrate high volume.
  • For example, the share price for a newly launched ETF can range from $10 to $100. When an investor with $10,000 to spend buys an ETF priced at $100 per share, that’s a volume of 100 shares. But spending that same $10,000 on an ETF priced at $10 per share yields a volume of 1,000 shares.
  • NAV plays a huge part in ETF volumes, particularly when higher-priced ETFs compete against ETFs with share prices at the lower end of the spectrum. While it appears higher-priced ETFs have lower volumes, it’s really the actual dollars traded that matter. 

  • Expecting the highest return from an ETF with the lowest expense ratio in a particular asset class isn’t a sound long-term approach. Instead, investors should select ETFs with investment strategies that match their financial goals.  
  • Consider the value equity strategy. Value ETFs have different takes on what constitutes “value.” Some look at value through the lens of dividends. Others give larger weightings to more value-oriented sectors, such as utilities or consumer staples, or focus on “deep value” stocks.
  • Each value methodology involves specific costs and creates different outcomes. And those outcomes further depend on the market climate and all the various components of an investor’s total investment portfolio. These factors are much more pertinent to long-term performance than the ETF’s expense ratio.

  • ETF managers can pull many different levers to minimize capital gains in their portfolios.
  • Most redemptions happen in kind, which means the low-cost-basis securities will exit the portfolio. So, the ETFs cost basis is always being reset.
  • There's always an opportunity for a portfolio manager to rebalance and build up losses in the portfolio to offset any gains, regardless of the turnover activity.
  • All ETF sponsors can leverage some form of creation/redemption mechanism associated with the rebalance of their underlying index. This absolves the fund from distributing the gains and instead allows investors to realize those gains when they decide to sell shares. 

  • In general, fixed-income ETF managers can leverage similar tax tactics as equity ETF managers, though the process within fixed-income ETFs is more complicated.
  • Given recent interest rate movements, many fixed-income ETFs likely have embedded capital gains. But similar to equity managers, bond managers can leverage different tools to offset those gains.
  • It’s important to remember there's nothing in the ETF structure versus the mutual fund structure that eliminates taxation of bond income. But trading management within a bond ETF versus a bond mutual fund can create tax efficiencies from a capital gains perspective.

  • ETFs with higher average daily volumes do not necessarily have higher spreads. Most ETFs are priced according to the liquidity of the underlying securities rather than trading volume.
  • For example, the average spread in the large-cap universe is somewhere between $1.25 and $1.75. Market makers need to add in hedging and other costs, meaning a typical large-cap security tends to be three- to five-cents wide. Spreads among other security types tend to be modestly wider.
  • Overall, spreads remain fairly competitive. Market makers do an excellent job of keeping them all close, regardless of volume.

May 5, 2021, call highlights

ETF flows remain on record-setting pace

  • Investors poured $74 billion into ETFs in April, bringing the year-to-date total to $325 billion.  For all of 2020, a record $500 billion flowed into ETFs.
  • Every category other than commodities experienced inflows in April. For the first four months of 2021, flows into equity ETFs already exceeded the total amount of equity ETFs inflows in 2020. The large-cap equity category alone took in $120 billion year to date.
  • Flows into investment-grade fixed-income ETFs totaled $15 billion in April and $41 billion year to date. In April, all fixed-income ETFs except long-maturity and corporate bonds experienced inflows.
  • We’re still waiting for the SEC to weigh in on two key issues facing the ETF industry: launching Bitcoin ETFs and expanding semitransparent ETFs to asset classes other than U.S. equities.

This month’s focus: Biden’s $6 trillion policy agenda

  • With the first piece of President Joe Biden’s legislative agenda—the $1.9 trillion American Rescue Plan—passed in March, investors are examining the next two components. We expect a lot of political horse trading to occur between now and when the final versions are up for vote.
  • The American Jobs Plan (AJP), which calls for $2.3 trillion in infrastructure and other spending funded by corporate tax hikes, will equal 1% of U.S. GDP each year of the bill’s eight-year lifespan. Approximately half the spending is aimed at traditional infrastructure, including road and bridge repair, electrical grid upgrades and water system improvements. The other half targets broad issues, such as home health services, job training, broadband access and clean energy initiatives.
  • The $1.8 trillion American Families Plan (AFP) includes significant tax hikes to fund programs such as free preschool and community college and subsidized daycare.

  • While it’s unclear what provisions of the proposed AJP and AFP will appear in the final bills, the tax implications—particularly from the AFP—will have the largest impact on investors.
  • The proposed taxes—from higher individual rates to new treatment of inherited assets—will make financial and estate planning challenging as Congressional negotiations unfold.

  • The AFP calls for raising the top marginal tax rate from 37% to 39.6%. Currently, the top rate kicks in at annual income of $628,300 (married couples). Under the AFP, the top tax rate will apply to annual income of $400,000 and higher.
  • The AFP also significantly raises the long-term capital gains tax rate for certain investors. For those with incomes of $1 million or more, the capital gains tax rate will climb from the current 23.8% to 43.4%, both of which include the 3.8% net investment income tax.
  • Under the AFP, the 3.8% net investment income tax will now apply to those earning $400,000 or more, including those generating income from partnerships and S corporations.
  • The plan also calls for imposing capital gains tax on inheritances, eliminating the stepped-up basis and taxing the inheritance at the asset’s original purchase price. The plan allows for a maximum $1 million exemption per person on the capital gain.

  • The existing $500,000 capital gains exclusion on a married couple’s principal residence remains.
  • The AFP limits like-kind exchanges, which allow real estate investors to defer capital-gains taxes when they swap properties. The bill caps the benefit at $500,000.
  • The bill also calls for taxing carried interest as ordinary income rather than capital gains.

  • The current version of the plan does not remove the federal cap on state and local tax (SALT) deductions.
  • The Tax Cuts and Jobs Act of 2017 limited SALT deductions to $10,000—a point of contention for higher-income taxpayers in high-tax states.
  • Some Democrats from high-tax states claim they won’t support the AFP unless the bill repeals the SALT cap.

  • Higher capital gains tax rates should enhance the attractiveness of ETFs broadly, given that ETFs are tax-efficient vehicles and tend to minimize capital gains.
  • Higher tax rates generally lead to increased demand for tax-exempt municipal bonds. Furthermore, along with their tax-free income, municipal securities aren’t subject to the net investment income tax. Conversely, stocks and corporate bonds are subject to the tax.
  • The Biden plan includes the largest capital gains tax hike in history, making it difficult to gauge investors’ response. Also, it’s unclear how this provision—or any of the bill’s other taxes—will fare during Congressional negotiations. We’ll continue to monitor developments to understand how the plan ultimately will affect specific investment vehicles and client strategies.

April 7, 2021 Call Highlights 

Small-cap and value were first quarter’s leaders

  • In the first quarter, small-cap stocks significantly outperformed large-cap stocks, while value stocks outpaced growth stocks.
  • An interesting anomaly emerged during the quarter. Typically, low-quality stocks underperform the broad market. However, low-quality stocks have recently outperformed high-quality stocks. We think stimulus has helped fuel this performance, but it’s a trend we’ll closely watch, given our ETFs’ focus on quality characteristics.
  • Among core bonds, rising rates led to negative first-quarter performance. High-yield bonds, which are less-sensitive to rate movements than investment-grade securities, delivered gains for the quarter, underscoring the importance of active management to take advantage of opportunities.

ETFs Experienced Record-Setting Flows

  • A record $240 billion in new assets flowed into ETFs during the first three months of 2021. This represents nearly 50% of the new assets that went into ETFs for all of 2020.
  • Most of the quarter’s new assets went into equity ETFs, and nearly half of the equity flows went into U.S. equity ETFs. Despite the challenges of rising rates, flows into fixed-income ETFs were positive.
  • Value-focused ETFs gained $25 billion in assets, while growth ETFs lost assets. Additionally, TIPS ETFs gained $8 billion in new assets. TIPS ETFs historically have seen low flow levels. More than $16 billion in new assets went into ESG ETFs, reflecting growing momentum in these strategies.

Active ETFs Showed Strongest Growth

  • While active ETFs comprise only 3.5% of the $5.9 trillion U.S. ETF market, their growth rate is the industry’s highest. Over the last three years, active ETFs have grown nearly 50%. In 2020, active ETF launches outpaced index ETF launches for the first time—thanks largely to the introduction of semitransparent ETFs. American Century Investments was the first to offer these products.
  • March marked the one-year anniversary of American Century’s launch of the industry’s first semitransparent active ETFs. The introduction of semitransparent ETFs marked the first time a new domestic equity ETF structure captured $1.5 billion in assets in its first year.
  • Demand for active ETFs remains strong. Year to date through March, 71 ETFs have launched, 51 of which are active portfolios. While semitransparent ETFs are currently only available in the domestic equity asset class, we expect the new SEC commissioner to set the tone for the next expansion.

  • In a transparent active ETF, all holdings are visible all the time. Semitransparent ETFs maintain some level of transparency—enough for market makers to quote prices and promote fair and efficient markets and for investment managers to protect their proprietary strategies.
  • No matter the specific structure of a semitransparent ETF, what really matters is these portfolios shield some or all of their specific holdings from daily disclosure. This allows the portfolio manager to put forth the best portfolio without any fears of front running or free writing.

  • In 2020, 56% of all equity mutual funds paid capital gains, while only 3% of equity ETFs paid capital gains. Among transparent ETFs, active ETFs generally do not pay more capital gains than passive ETFs.
  • Since their March 2020 launch, American Century’s four semitransparent ETFs have not paid capital gains. We believe this is the mark of skilled portfolio management. Of course, this doesn’t guarantee they won’t pay capital gains in the future.
  • Unlike passive ETFs, active ETFs can employ tax-loss harvesting strategies and other tactics to enhance overall tax efficiency.

March 3, 2021 Call Highlights

February ETF flows were strong

  • Nearly $96 billion flowed into ETFs in February, the second-largest monthly amount on record. February’s flows brought the year-to-date total to $151 billion. For all of 2020, flows slightly surpassed $500 billion. Some pundits believe ETFs will take in a record $600 billion in 2021.
  • Most of the new money went into equity ETFs—$59 billion into U.S. equity ETFs and $26 billion into non-U.S. equity. Within the equity asset class, value ETFs had positive flows, while growth ETFs experienced outflows. Thematic ETFs took in $12 billion in February.
  • Fixed-income ETFs took in nearly $7.5 billion in February, including $2.8 billion in TIPS ETFs, reflecting investors’ growing concerns about inflation.

  • In their search for yield and stability, ETF investors are favoring investment-grade fixed income. Year to date, all fixed-income flows have gone into investment-grade portfolios. High-yield ETFs have experienced outflows.
  • In terms of maturity, investors have generally favored short-maturity bonds over intermediate-maturity bonds. But both categories have experienced positive flows.

  • Volatility tends to prompt investors to move money around, thus creating spikes in trading volumes. Trading volumes also tend to increase after index rebalancings.
  • We recommend waiting approximately 15 minutes after the market opens to initiate trades. We also suggest avoiding the last five to 10 minutes of any trading day.
  • In volatile markets, it’s important to examine the liquidity of the ETF’s underlying securities. For less-liquid securities, such as preferreds and convertible bonds, spreads can remain wider than normal for up to 30 minutes after the market opens—particularly when volatility is heightened.

  • Efficient trading can help a portfolio, while poorly executed trades can hurt a portfolio. You want to leverage the control and keep the control with you, which is why we recommend using limit orders—even with smaller trades. We recommend setting limit orders at the ask price or a little bit above the ask.
  • If you put a limit order at the bid, you're saying you want to buy the shares at a price that somebody is willing to sell. The moment you go inside the ask with a price you want to pay, you become the bid, waiting for one of two things to happen. You're waiting for somebody to sell you shares, or you're waiting for the underlying securities to fall below the price market makers believe reflects the underlying liquidity. And some ETFs have more liquidity than the underlying securities because they trade so much. But 60% to 65% of all ETFs trade fewer than 50,000 shares a day.
  • For larger share purchases—say 1,000 shares or more—you’re counting on enough sells to fill that order. To lessen this risk and ensure you get the securities, you need to eliminate the ask, by setting the price at least a penny above. This will help you purchase the securities while controlling the price.

  • When trading large blocks of shares—5,000, 10,000 or more—it makes sense to leverage a block desk to get the best execution.
  • With a block desk, you have the opportunity to execute a larger trade than what the market makers are willing to do at the ask price. And every time you can do better than the ask price, you're actually improving your client's long-term total return.
  • If you have questions about trade execution, reach out to your American Century representative, who will put you in touch with our capital markets desk. It's a helpful resource available to all our clients.

  • Trading a semitransparent ETF is no different than trading a traditional ETF. Similar to traditional ETFs, we recommend waiting at least 15 minutes after the market opens before trading.
  • When buying a smaller lot of shares, we recommend using a limit order and setting the purchase price a penny above the ask price. When buying a larger number of shares, we suggest using a block desk.
  • The platforms have built up the block desks to really help you get the best execution, whether it's a small volume ETF or a small asset ETF. The market makers have done enough of these trades to realize where liquidity is and how they have to compete for price, even though they don't know the specific holdings.
  • Among American Century’s transparent active ETFs, even though we don't see the holdings every day, they're still trading very efficiently. They have fairly consistent spread levels based on what is within the underlying exposures.

  • Instead of prices, it’s important to look at the spread related to price. On the surface, a $25 product with a 4-cents spread looks to be a better value than a $50 with a 7-cents spread. But when the market maker converts the relationships to basis points, the $25 per share ETF actually has a wider spread.
  • It’s also important to remember that cash flows in and out do not affect share price. The performance of the underlying securities is the only factor affecting share price.
  • Given the structure of ETFs and the way in which buys and sells are executed, there’s no drag from trading costs. While the effect may only be one or two basis points a year, it adds up over time and can enhance performance for long-term investors.

February 3, 2021 Call Highlights

ETFs start year strong

  • ETFs took in $56 billion in January, even as volatility soared late in the month. International equity ETFs saw the largest flows.
  • Thematic ETFs took in $13 billion, including more than $4 billion to energy ETFs. Within the equity category, $8 billion flowed into the value style.
  • Flows into fixed-income ETFs totaled $13 billion in January. Continuing the momentum from 2020, investors poured $8 billion into ESG ETFs.

  • Building on strong popularity in Europe, investing with an ESG lens is gaining growing acceptance in the U.S. For example, a recent study indicated 60% of Millennials are interested in investing in ESG products.
  • Politics is also playing a role. Fulfilling his campaign promises, President Joe Biden on his first day in office signed several executive orders altering various aspects of U.S. energy policy. Separately, GM set a goal of eliminating gas-powered vehicles by 2035. These actions are highlighting the “E” of ESG investing.
  • ESG has shifted from an exclusionary exercise (avoiding certain types of companies) to a driver of performance, largely due to technological advancements in select industries, such as energy. 

  • In addition to a potential performance enhancer, ESG is often a component of the risk management process. Any of the ESG pillars—environmental, social or governance—has the potential to affect a company’s brand or reputation, making ESG important to the risk management process.
  • Several ESG data vendors provide information and scoring on companies’ ESG merits. Additionally, many investment managers incorporate proprietary criteria when integrating ESG into their investment process.
  • Broadly integrating ESG into the overall investment process is one approach investment managers may use for core portfolios. Some managers take the ESG integration further, tilting portfolios to companies with the highest ESG scores and underweighting companies with lower scores.
  • ESG integration can lead to thematic portfolios, such as those focusing on clean energy or low carbon companies. Generally, these portfolios would serve as a complement to an investor’s overall investment strategy.
  • Impact investing takes sustainable investing a notch further. In addition to investing in “good” companies (from an ESG perspective), they try to generate a measurable E, S or G impact along with financial return.

  • Morningstar recently purchased Sustainalytics, an ESG and corporate governance research, ratings and analytics firm. With this purchase, Morningstar offers a solid global framework for measuring companies’ ESG performance.
  • The website and Bloomberg also offer various ESG analytics and tools.
  • It’s important to note there are many different ESG data vendors in the marketplace, each offering a different approach. So, a company that scores well with one vendor may not score well with another. The key is figuring out which source aligns with your goals, so you can have one consistent analysis.

  • There are many passive equity products available, some pursuing growth or value objectives, some focusing on specific themes, and others in the impact category. But all are subject to the goals and methodology of the underlying index.
  • We're strong believers in active management overall, but within the ESG space, active management removes some of the reliance on vendors and their specific scoring methods. Active management also limits the focus on historical data, allowing consideration for companies the manager believes are taking valid, active steps to improve their ESG compliance. It also expands the investment universe into smaller companies the vendors may not monitor.
  • In the fixed-income category, it’s difficult to create indices around ESG, so all portfolios in this asset class are currently actively managed.

  • American Century launched two actively managed semitransparent ESG ETFs in 2020—the first to do so.
  • Sustainable Equity ETF (ESGA) is a large-cap core portfolio that intentionally overweights companies we believe offer the best ESG characteristics while underweighting the laggards. Mid Cap Growth Impact ETF (MID) invests in high-quality mid-cap growth companies we believe offer attractive return potential and positive impacts on society.
  • Many of our traditional investments also feature ESG integration, a natural evolution for American Century’s unique ownership structure. The Stowers Institute for Medical Research owns a controlling interest in American Century. Through this structure, American Century’s dividend payments ensure the ongoing support of the institute’s important work toward improving health and saving lives.

First Quarter Outlook

January 13, 2021

Edward Rosenberg, Head of ETF, and Sandra Testani, Director of ETF Product Management, start the new year with an update on the market, ETF flows and what to expect as we kick off 2021..

What Was and What Could Be

December 2, 2020

Edward Rosenberg, Head of ETFs at American Century Investments, presents a brief recap of 2020 and his outlook for the ETF market in 2021.

What Now? Post-Election Perspective

November 4, 2020

Edward Rosenberg, Head of ETFs at American Century Investments, shares thoughts on the election outcome and his outlook for the coming months.

Tips for Tax-Loss Harvesting

October 7, 2020

Edward Rosenberg, Head of ETFs, provides a brief update on the market, ETF flows and the dos and don’ts of tax-loss harvesting.

What's Driving the Industry Shakeout?

September 2, 2020

Edward Rosenberg, Head of ETFs at American Century Investments, provides a brief update on the market, ETF flows and what’s behind the low number of launches and high number of closures.

Looking Under the Hood

August 11, 2020

Edward Rosenberg, Head of ETFs, shares a brief update on the market, ETF flows and what’s behind the low number of launches and high number of closures.  

2020 Half-Time Report

July 1, 2020

Edward Rosenberg, Head of ETFs, shares a mid-year update, reviews the big trends in 2020 and shares what we are watching for in the second half. 

The ETF Revolution Continues

June 2020

This year marks a new milestone for the ETF universe. Asset flows tell us clients are increasingly incorporating ETFs into their portfolios to get the exposure they want. Hear from Head of ETFs, Edward Rosenberg, as he shares his thoughts on the markets, recent changes to the ETF landscape and expanding ETF investing opportunities

Reimagining ETFs

American Century Investments® and Avantis Investors™ bring you ETF solutions with distinct expertise

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.

IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.

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.

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

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.

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 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.

IRS Circular 230 Disclosure: This communication was written in connection with the promotion or marketing, to the extent permitted by applicable law, of the transaction(s) or matter(s) addressed herein by persons unaffiliated with American Century Companies, Inc. American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, to the extent this communication contains any discussion of tax matters, such communication is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties. Any recipient of this communication should seek advice from an independent tax advisor based on the recipient's particular circumstances.

This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.

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.

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