US investment management giant, American Century with USD300 billion in assets, manages nearly USD90 billion in ETF assets of which more than USD80 billion is within the Avantis ETF range.
Within that are the three UCITS ETFs launched in the UK last year as the firm expanded overseas, with products that have raised USD1 billion in that year.
Avantis Investors’ Chief Investment Strategist Phil McInnis and Head of EMEA Richard Adams explain that Avantis is effectively a sub-brand of American Century.
McInnis says: “American Century is a multi-boutique organisation across different investment disciplines and Avantis is another discipline which has one singular philosophy and foundation – everything is long only, broadly diversified, with low fees, transparency and low turnover and use a consistent investment process.”
The driver for launching the European products, currently listed in the UK and Germany, was clients asking the firm to come to Europe. “Some wealth management firms who look after US expats were familiar with our US domiciled ETFs and asked for something in the UCITS framework they could access,” McInnis says. “We are client centric and in financial services, so if a client asks for something, we are going to strongly consider it.”
Richard Adams joined the firm in 2018 as a client portfolio manager in the London American Century office, but he now works with the Avantis UCITS ETFs, invested in Global Small Cap value, Global Equities and Emerging Markets as the head of EMEA.
“Where we saw demand from clients was in replicating where Avantis started in 2019 with five ETFs in the US. We have cloned the emerging markets product and the other two are essentially the US and non-US-strategies put together that we started out with. They work well as all three give you a total market solution.”
The firm is further leveraging the UCITS structure, having wrapped UCITS ETFs for an Australian trust offering. “The UCITS vehicle is super powerful in allowing us to do that efficiently,” McInnis says.
“We have been at active ETF-focused events and have been surprised by the openness of allocators. We cleared USD1 billion in nine months after listing those three ETFs and are just getting started now. We expect growth to pick up and activity beyond Germany and the UK.”
The reason for the registrations just in Germany and the UK is caution.
“We tend to try to be judicious. Rather than registering everywhere, we like to see that demand expressed first, so the UK and Germany were the two largest ETF opportunity sets and where we had distribution,” McInnis says.
Adams confirms that the firm largely works with advisers, wealth managers and family offices.
“This is where we have most of our business in the US but we are now seeing breadth with the types of organisations we work with and seeing something exciting in Germany with adoption by a younger demographic and we think we have a big role to play there.”
McInnis adds that the neobroker/roboadviser trend could be based on COVID where people were sitting at home and getting interested in their investments. “What is less clear is whether that creates a better outcome for them,” he says. “We come from a place that is based on long term capital markets rewarding investors and primarily work through intermediaries. It’s not our expertise to market to retail investors – we are thrilled if they do invest, but there is something to be said for good financial advice – it’s a powerful thing and we like to help advisers help their clients.”
Adams has noticed that he is seeing a growth in the breadth of ETF adoption in Germany and also in the UK. “It’s rare now that we speak with a group that isn’t using ETFs. At a recent event with an audience made up of a mixture of wealth managers and advisers there was almost 99 per cent of audience using ETFs.”
The UK’s platforms, used by many advisers, remain a problem, Adams says.
“Some are quite efficient but it’s a mixed bag and I do see that changing with platforms planning to modernise their ETF trading opportunities and being more innovative in how they provide access to ETFs. We are encouraged by the number of asset managers bringing ETFs to the market and the increase in education.
“We are optimistic in the UK and believe the changes will help with the adoption of ETFs in the advisory market.”
In terms of cross Europe expansion, Adams says: “We have conversations with investors in other countries and if we find that there is an audience engaging with us and we can bring something, we would add more registrations.”
Potential new products for Europe would see the addition of regional strategies, maybe across Europe and Asia.
McInnis says that the firm started with just five ETFs in 2019 and the range is now greater than 30 but all under the same philosophy.
“The way we fish isn’t changing,” he says. “We started with global, developed, small and then emerging so then we were asked for regional. We try to make sure there is a client need as we don’t want to be in the business of hoping that we are launching what people are looking for.”
Adams adds: “One of the things we have been encouraged about is that we have been one of the fastest to get to the one billion dollars under management in UCITS ETFs, which shows the extent to which we can bring value.”
“One thing we try to be cognisant of is that anyone we speak with needs a total allocation so anything we do has to fit within the broader portfolio goal they have,” McInnis says.
“We are big believers that it is never a good outcome if clients are surprised by their investment results. We don’t want people to be surprised, so we take a fair amount of care in how we explain the strategies and helping to ensure there is alignment with their expectations.”
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