These new portfolios will employ short selling, but in different proportions and using different investment approaches. American Century recently published a study that showed the use of alternative investment strategies is on the rise (see “Wirehouse Brokers Use Alternatives the Most”).
The alternative strategies include:
Core Equity Plus: Core Equity Plus is a 130/30 version of the American Century Equity Growth Fund, a large core fund. The strategy will take long positions in securities that managers believe will appreciate and short positions in securities that managers believe will underperform. Specifically, the fund is long 100% of its assets, shorts 30% of the value of the portfolio, and uses the proceeds of the short sale to invest an additional 30% in long investments. By extending the long-only mandate with limited shorting, American Century Investments seeks to enhance portfolio efficiency and achieve higher excess return without increasing market risk.
The fund’s investment strategy utilizes quantitative management techniques in a disciplined, repeatable process. Stocks representing a broad range of larger domestic companies, approximately 1,200-to-1,600 securities, are ranked from most attractive to least attractive. This is determined by using a stock selection model that combines measures of a stock’s relative valuation, its growth and momentum characteristics, and quality.
Disciplined Growth Plus: Disciplined Growth Plus is a 130/30 version of the American Century Disciplined Growth Fund, a large growth fund. Like Core Equity Plus, this fund also uses limited shorting to enhance portfolio efficiency and obtain higher excess returns without increasing market risk.
The fund’s investment strategy utilizes the same quantitative management techniques and processes as Core Equity Plus. The differences between the two portfolios are the style benchmarks for the strategies, the starting universe and the makeup of the stock ranking model. The stock ranking model includes similar measures of relative value, growth and quality as the Core Equity Plus model, but with a greater bias toward measures of growth and growth potential.
Market Neutral Value: Market Neutral Value extends the capabilities, track-record and reputation of American Century Investments current U.S. Value Equity team. The strategy will buy long securities that appear relatively undervalued while selling short securities that appear relatively overvalued. It will seek to maintain equal dollar amounts in long and short equity positions. Market Neutral Value will primarily utilize the stocks within American Century Investments proprietary value database, the same pool of securities used by American Century Equity Income Fund, Value Fund, and Mid Cap Value Fund.
Market Neutral Value seeks to deliver an annualized return that exceeds the 90-day Treasury Bill rate, as well as lower volatility than, and correlation to, the broad equity market over a market cycle.
These new portfolios complement American Century’s current alternative strategies: Real Estate, Global Real Estate, Global Gold, Strategic Inflation Opportunities, and Equity Market Neutral.