American Century Investments Enhances Risk Management While Reducing Fees For Its Popular One Choice® Target Date Portfolios

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Jul 26, 2017, 11:39 ET

KANSAS CITY, Mo., July 26, 2017 /PRNewswire/ -- American Century Investments® is rolling out a series of important enhancements to its highly regarded One Choice® Target Date Portfolios: 1) evolving risk management to balance the multiple risks retirement investors face, 2) expanding product flexibility through a new fee structure, and 3) improving the risk/return profile of the fixed income allocations.

"We regularly examine opportunities that we believe will enable more participants to reach their retirement goals," said Rich Weiss, CIO, Multi-Asset Strategies. "These changes were guided by our desire to serve their best interests."

Dynamic risk management

Managing a target-date portfolio for a diverse group of participants requires balancing multiple risks, which are a function of an investor's age and the market environment, according to Weiss. "Young participants' risk sensitivities and preferences are very different from those of participants approaching retirement. The introduction of Dynamic Risk Management on July 31 will allow us to fine-tune the balance of risks for a broad range of participants," he said.

Specifically, the team determined there are opportunities to reduce longevity risk -- the risk of outliving one's savings -- for younger participants by increasing equity exposure when market environments are favorable for stocks. In unfavorable environments for stocks, reducing market risk for participants closer to retirement may help preserve their savings, according to Weiss. A proprietary signal identifies the market environment and a set of allocation rules. The signal picks up on intermediate-term trends to capture larger environmental shifts while limiting turnover and preventing reactions to short-term market noise.

One Choice Portfolio's strategic glide path remains among the flattest in the target-date industry, especially for the critical years around retirement. "We have always believed that the slope of the glide path, or how much you change risk over time, has a definitive relationship with investor outcomes. It's our opinion that a flatter guide path slope helps to minimize the potentially harmful effects of market cyclicality and reduce unwanted volatility for participants," said Weiss.

Reduced fees

The enhancements in risk management come at the same time American Century is reducing fees. Effective July 31, a direct management fee model that assesses fees at the top product (e.g. 2020 Fund) level will replace the current indirect fee model in which underlying funds' fees roll up to the target-date net expense ratios. This pricing structure is possible through a new fee-waived underlying share class. Fees under the new model will be lower. (The new fee structure will be outlined in the fund's prospectus after July 30.)

"The move will streamline our target-date offering for our clients and allow us to be more cost effective in the future," VP Global Product Management Drew Billingsley said. "It also will enable us to adjust the asset allocation of the funds without being concerned that a new asset class will inadvertently raise fees."

Fixed income enhancements

Two changes are occurring in the fixed income allocation of One Choice Portfolios to help improve the asset class's risk/return profile in 2017.

The first took place in May. NT (No Tobacco) High Income, subadvised by Nomura Corporate Research and Asset Management (NCRAM), replaced the existing high-yield bond allocation. "We believe NT High Income's risk/return profile will have a better overall effect on the risk-adjusted performance of our target-date portfolios. Also, this was an excellent opportunity for the firm to leverage our strategic partnership with Nomura for the benefit of our clients." In 2016, Nomura completed its purchase of a 41 percent non-controlling equity stake in American Century.

In December, American Century will be adding emerging-markets corporate debt to the investment mix, using the expertise of the firm's Emerging Markets Debt (EMD) team, led by Margé Karner and John Lovito. "Our research shows a maturation in the asset class and that EMD has the potential to produce strong risk-adjusted returns compared to other asset classes," Weiss said. "In addition to its potentially beneficial return and income effects, we believe EMD is an excellent diversification resource relative to our portfolios' other holdings and thus, may help serve to lower overall portfolio risk."

One Choice Portfolios are managed by Co-Chief Investment Officer and Senior Vice President G. David MacEwen; Chief Investment Officer, Multi-Asset Strategies, Senior Vice President and Senior Portfolio Manager Richard Weiss; Vice President and Portfolio Manager Scott Wilson, CFA; and Vice President and Portfolio Manager Radu Gabudean, Ph.D.

American Century Investments is a leading global asset manager focused on delivering investment results and building long-term client relationships while supporting research that can improve human health and save lives. Founded in 1958, American Century Investments' 1,300 employees serve investment professionals, institutions, corporations and individual investors from offices in New York; London; Hong Kong; Mountain View, Calif.; and Kansas City, Mo. Jonathan S. Thomas is president and chief executive officer, and Victor Zhang and David MacEwen serve as co-chief investment officers. Delivering investment results to clients enables American Century Investments to distribute over 40 percent of its dividends to the Stowers Institute for Medical Research, a 500-person, non-profit basic biomedical research organization. The Institute owns more than 40 percent of American Century Investments and has received dividend payments of nearly $1.3 billion since 2000. For more information about American Century Investments, visit www.americancentury.com.

You should consider the fund's investment objectives, risks, charges and expenses carefully before you invest. The fund's prospectus or summary prospectus, which can be obtained by visiting americancentury.com, contains this and other information about the fund, and should be read carefully before investing. Past performance is no guarantee of future results.

American Century Investment Services, Inc., Distributor
©2017 American Century Proprietary Holdings, Inc.

Mutual fund investing involves risk, including possible loss of principal. Bonds and bond funds are subject to interest rate risk and will decline in value as interest rates rise. High yield bonds involve greater risks of default or downgrade and are more volatile than investment grade securities, due to the speculative nature of their investments.

A One Choice^® Target Date Portfolio's target date is the approximate year when investors plan to retire or start withdrawing their money. The principal value of the investment is not guaranteed at any time, including at the target date.

Each target-date One Choice^® Target Date Portfolio seeks the highest total return consistent with American Century's proprietary asset mix. Over time, the asset mix and weightings are adjusted to be more conservative. In general, as the target year approaches, the portfolio's allocation becomes more conservative by decreasing the allocation to stocks and increasing the allocation to bonds and money market instruments.

By the time each fund reaches its target year, its target asset mix will become fixed and will match that of One Choice^®In Retirement Portfolio.

The underlying funds do not invest in securities issued by companies assigned the Global Industry Classification Standard (GICS) for the tobacco industry.

The information is not intended as a personalized recommendation or fiduciary advice and should not be relied upon for investment, accounting, legal or tax advice.