Active ETFs Using NYSE Model Launch

July 16, 2020

On Wednesday, American Century debuted two new actively managed ESG ETFs using nontraditional disclosure methods.

The American Century Sustainable Equity ETF (ESGA) and the American Century Mid Cap Growth Impact ETF (MID) are the first funds to use the SEC-approved model developed by the NYSE for what have been termed by many as “nontransparent active” ETFs.

ESGA comes with an expense ratio of 0.39% while MID charges 0.45%. Both ETFs list on the NYSE Arca.

NYSE's model disguises a manager's trading activity through a proxy portfolio, which has different security names and weights than the fund's actual holdings, but which performs substantially the same. This proxy portfolio—which consists of the fund's actual holdings, but on a five- to 15-day lag, as well as additional names that do not appear in the real fund at all—is published every day, and can be used for intraday pricing and hedging.

The Funds

ESGA targets large-cap companies that demonstrate “sustainable business improvement,” according to its prospectus. The fund is managed via an in-house multifactor model that scores companies on financial metrics and ESG qualities.

It’s designed to enable the fund’s portfolio managers to select stocks that have competitive edges, offer better returns without meaningful added risk, and provide better ESG exposure than the S&P 500 Index, the document says.

Meanwhile, MID targets midcap stocks and evaluates them according to the standards of the United Nations Sustainable Development Goals. The portfolio managers use both internal and third-party tools and data. The prospectus notes that a company only needs to meet one of the development goals to be considered for inclusion.

The goal of the fund manager is to select companies that are showing improvement over the long term, such as those that have seen improvement or acceleration in their revenue growth rates, cash flows or relative busines strength, the document says.

Contact Heather Bell at [email protected]

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