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American Century Makes Its Liquid Alts Move

By DailyAlts Staff American Century has been fairly quiet on the liquid alternatives front as the product category has experienced a boom since the 2008 financial crisis. In 2011, the firm launched two “130/30” funds and a market-neutral fund, and it has been operating another equity market-neutral fund since 2005, but American Century has largely been on the sideline of the liquid alts movement. That is, until now. On February 3, American Century filed paperwork with the Securities and Exchange Commission (SEC) seeking approval for three new alternative mutual funds. The firm has also initiated a new brand for its alternatives business and filed to trademark the brand “AC Alternatives,” which is used on the new line of alternative mutual funds. The AC Alternatives Income Fund The AC Alternatives Income Fund’s stated objective is providing investors with “diverse sources of income.” In pursuit of this objective, the fund’s managers will combine several distinct strategies designed to capture current yield, while also seeking to protect inflation-adjusted purchasing power through capital appreciation. Some of the fund’s strategies and investments will include: Corporate credit strategies Structured credit strategies Real estate strategies MLP strategies Income-oriented equity strategies The fund will also pursue PWP overlay strategies, which involve “exploiting market opportunities, managing inflows and outflows of fund assets and/or hedging against certain risks” identified by sub-advisor PWP. Arrowpoint Partners and Good Hill Partners are also listed as sub-advisors to the fund, but according to the prospectus, PWP “may make recommendations to the advisor to terminate and replace underlying sub-advisors from time to time.” The AC Alternatives Equity Fund The AC Alternatives Equity Fund will employ several equity strategies, with low correlation to one another and the broad market, in pursuit of capital appreciation. As with the AC Alternatives Income Fund, PWP is a sub-advisor and PWP overlay strategies are among the equity strategies that will be utilized by the AC Alternatives Equity Fund. Other strategies include: Long-only Long/short Event driven Trading oriented strategies In addition to the overlay strategies, PWP will also sub-advise the fund’s event driven and trading strategies, while Passport Capital will sub-advise its long/short equity strategies. The AC Alternatives Multi-Strategy Fund Finally, the AC Alternatives Multi-Strategy Fund will pursue four distinct strategies managed by four different sub-advisors, as well as four additional strategies sub-advised by PWP. The strategies, which span asset classes, are listed below with their sub-advisors in parenthesis: Long/short credit (Good Hill Partners) Long/short credit (MAST Capital) Event driven (Levin Capital) Long/short equity (Passport Capital) Overlay (PWP) Global macro (PWP) Real assets (PWP) Trading strategies (PWP) American Century’s Existing Alts The three new alternative mutual funds will join American Century’s current lineup of liquid alts, which include a pair of “130/30” funds (arguably not an alternative strategy since it has a beta of 1.0 to its benchmark) and a pair of market-neutral equity funds. The “130/30” funds, which average 130% long and 30% short equity exposure, have outperformed their long-only counterparts. The American Century Core Equity Plus Fund (MUTF: ACPVX ), with approximately $170 million in fund assets, has a five-star rating from Morningstar and generated a 14.99% return for the year ending January 30. The American Century Disciplined Growth Plus Fund (MUTF: ACDJX ), with approximately $33 million in fund assets, also has a five-star rating, and it generated an even better 20.21% return for the year ending January 30. The American Century Market Neutral Value Fund (MUTF: ACVVX ) launched at the same time as the two “130/30” funds and currently has approximately $76 million of fund assets. It has a four-star rating from Morningstar and generated a 3.31% return for the year ending January 30, which was still enough to rank it in the top 19% of its category. American Century’s oldest liquid alts product, the American Century Equity Market Neutral Fund (MUTF: ALHIX ), also has a four-star rating. It returned 2.07% for the year ending January 30 and currently has approximately $117 million of fund assets. For more information, visit americancentury.com .

Loan Fund Primer

Sweden is now the latest country to make headlines about extreme central bank policy to stimulate growth which creates a dilemma for Swedish people trying to save money. This highlights the need to learn about different sectors of the fixed income market and taking a multi-sector approach in your fixed income portfolio. One sector that has attracted attention and assets has been the loan market. By Roger Nusbaum, AdvisorShares Strategist Last week the Riksbank (the Swedish central bank) dropped its benchmark interest rate to -0.10 and as of earlier this week Sweden’s ten year sovereign debt was yielding 0.50%. So Sweden is now the latest country to make headlines about extreme central bank policy to stimulate growth. We will see whether this turns out to be effective policy but it creates a dilemma for Swedish people trying to save money. This is the same or similar dilemma for people in many other countries including the US and while our rates are not as low as many other countries they are low enough to be problematic; two basis points for a money market and 2% for ten year treasuries. We’ve been looking at this issue for years, making the point about the need to learn about different sectors of the fixed income market and taking a multi-sector approach in your fixed income portfolio. We’ve talked about combining sectors with higher yields and so potentially more risk with sectors with lower yields and likely less risk to get an overall yield that hopefully approaches a useful level even if not a normal level; normal based on historical interest rates. One sector that has attracted attention and assets has been the loan market. There have been traditional mutual funds offering access for a fair bit of time and in the last couple of years ETFs have been rolled out that target the sector and the asset flows have been huge, more than $5 billion for the largest fund in the group. The attraction is simple enough; yields can be in the four percent range and because of their reset feature they don’t take interest rate risk. ‘Reset feature’ means that the interest rate paid on the loans adjusts based on prevailing rates on a regular interval, usually every three months. If you look on the info page for a loan fund you’ll see a maturity of several years but you’ll also see something like average days until reset which is when the rate on a given loan will update. From quarter to quarter there may not be much change but occasionally there will. This entire mechanism reduces interest rate risk to being essentially a non-issue. The credit quality of course tends to be lower which accounts for the yields being relatively attractive. Credit risk is generally mitigated, but not completely mitigated, by accessing the space via a fund similar to high yield. I would note that accessing an individual loan is not really a possibility for individuals. The other risk to mention is liquidity risk. Loans don’t trade on a secondary market so during some sort of event that strains liquidity the funds and their holders could have a problem with short term volatility. Most of the funds have the flexibility to hold some bonds that do trade on a secondary market to help in the face of a liquidity event. Anyone interested in the space, and with the yields available it is worth learning about, should take the time to understand what their given fund will do to address this potential issue. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article. Additional disclosure: To the extent that this content includes references to securities, those references do not constitute an offer or solicitation to buy, sell or hold such security. AdvisorShares is a sponsor of actively managed exchange-traded funds (ETFs) and holds positions in all of its ETFs. This document should not be considered investment advice and the information contain within should not be relied upon in assessing whether or not to invest in any products mentioned. Investment in securities carries a high degree of risk which may result in investors losing all of their invested capital. Please keep in mind that a company’s past financial performance, including the performance of its share price, does not guarantee future results. To learn more about the risks with actively managed ETFs visit our website AdvisorShares.com .AdvisorShares is an SEC registered RIA, which advises to actively managed exchange traded funds (Active ETFs). The article has been written by Roger Nusbaum, AdvisorShares ETF Strategist. We are not receiving compensation for this article, and have no business relationship with any company whose stock is mentioned in this article.

The Bright Future Of The Indian Consumer

After Narendra Modi’s political party won the general election in May 2014, the Indian economy set off in a new, promising direction. Favorable demographics and foreign direct investments will be the long-term tailwinds. Tumbling inflation makes consumers more confident in spending. It is estimated that by 2030, India is likely to surpass the USA and China and become the world’s largest consumer market. Economists and investors have turned optimistic about the prospects of the Indian economy since Narendra Modi’s political party won one of the largest elections in the country’s history last May. Before Modi became a Prime Minister, he led one of the fastest growing states in the country, so many people believe his government will be able to push through the most critical reforms to liberalize local industries and revive economic growth. According to the International Monetary Fund, the reform plan of the new Prime Minister is promising, although the key is going to be implementation . In its latest World Economic Outlook, the IMF forecasts that India will grow at 6.3% this year and 6.5% in 2016, when it is likely to overtake China. In contrast to the accelerating Indian economy, the Chinese economy is still projected to struggle with its decelerating growth rate. In 2015, China’s growth rate is expected to slow to 6.8%, while a year ago it reached 7.4%. One should not forget that India is the second most populous country in the world, with over 1.27 billion people (17.5% of the world’s population), and is projected to be the world’s most populous country by 2025. What is more interesting is that more than 50% of the Indian population is below the age of 25, and it is expected that, in 2020, the average age of an Indian will be 29 years, compared to 37 for China and 48 for Japan. This population composition together with Modi’s ambitious ‘ Make in India ‘ program to attract foreign direct investments will undoubtedly support the ongoing rapid expansion of India’s middle class consumer market. A very good piece of news for the Indian economy is that the great fall in global crude oil prices, 60% in the last six months, has helped to finally tame the long-standing high inflation rate. In particular, the rising prices of food have slowed, which frees up more disposable income for India’s middle classes to spend on other goods and services. The improving optimism of Indian consumers can be evidenced by the following graph showing the recent progress of consumer confidence. (click to enlarge) According to Rachna Nath, head of retail and consumer at PwC India, consumers are still hesitant about making big luxury purchases despite the record values of the index. Consumers are positively bullish because of what the new government is doing right now, but all of them will say that we also need to see it translate on the ground. However, Indians do seem prepared to splash out on some premium fast-moving consumer goods, like foodstuffs, for example. Just a few years ago the Indian market was dominated by basic glucose biscuits. Today, higher-end varieties have grown popular. On the back of better incomes, the overall FMCG market is anticipated to expand at a CAGR of 14.7% to 110.4 billion dollars during 2012 and 2020. By that year, some reports even predict that India will become the world’s third largest middle class consumer market just behind China and the US, which it will likely surpass by the end of the next decade. Probably the best suited ETF for the trends highlighted above is the EGShares India Consumer ETF (NYSEARCA: INCO ), which is designed to track the Indxx India Consumer Index measuring the market performance of 30 Indian consumer sector companies. Since Narendra Modi assumed the office of Prime Minister in late May, the fund has added more than 34%, while two major Indian equity benchmarks, the CNX Nifty and the S&P BSE SENSEX, have gained 20 and 19% respectively. Since the beginning of this year, the fund has yet outperformed both indices by more than 6%. Moreover, most of the time, shares of the fund trade at a modest discount to NAV. Last year, there were 211 out of 252 trading days when the fund’s market price was below the reported net asset value, and this year, there have already been so far 26 such days. Presumably, the most significant INCO’s drawback lies in it’s liquidity as the fund was launched relatively recently and has a little over 52 million dollars assets under management. The picture below displays key statistics of INCO’s portfolio as of 12/31/2014. Source: EGShares India Consumer ETF’s factsheet Over the long-term, the highly inclusive sector of automobiles & parts in INCO should not only benefit from rapidly growing car and two-wheeler manufacturing industry , but also from the intended investments into infrastructure, which can be directly grasped through another ETF – the EGShares India Infrastructure ETF (NYSEARCA: INXX ). Nevertheless, one should be aware that many investors currently perceive these infrastructure projects to have unfavorable risk-reward relationships . On the other hand, it wouldn’t be a mistake to purchase the WisdomTree India Earnings ETF (NYSEARCA: EPI ), iShares MSCI India ETF (BATS: INDA ), iShares S&P India Nifty 50 Index ETF (NASDAQ: INDY ), PowerShares India Portfolio ETF (NYSEARCA: PIN ), or any other ETF, which provides exposure to the broader Indian equity market, as Modi’s reforms concern the economy as a whole. Disclosure: The author is long INCO. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.