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2018 | Q2 CIO Roundtable: Avoiding Complacency

Investment Outlook2

G. DAVID MacEWENCo-Chief Investment Officer American Century Investments and CIO, Global Fixed Income

RICH WEISSChief Investment Officer Multi-Asset Strategies

VINOD CHANDRASHEKARAN, Ph.D. Chief Investment Officer Disciplined Equity

VICTOR ZHANGCo-Chief Investment Officer American Century Investments

CLEO CHANGHead of Alternatives

PHILLIP N. DAVIDSON, CFACo-Chief Investment Officer Global Value Equity

KEITH CREVELING, CFAChief Investment Officer Global Growth Equity

KEVIN TONEY, CFACo-Chief Investment Officer Global Value Equity

3americancentury.com

INTRODUCTION

VICTOR ZHANGCo-Chief Investment Officer American Century Investments


2018 | Q2

After an extended period of relative calm, volatility came roaring back during the first quarter. Equity markets around the world experienced long overdue corrections amid worries about rising inflation, the growing U.S. federal deficit, and higher U.S. Treasury yields. These concerns, along with fears that proposed U.S. tariffs on steel and aluminum were the opening salvos of a trade war, were not-so-subtle reminders for investors to avoid becoming too complacent.

Thanks to the correction, valuations are a bit less stretched, but we should keep in mind that U.S. stock valuations remain quite high by historical standards and relative to other developed markets. The case for confidence argues that these valuations are justified by near-term tailwinds such as modest growth and healthy corporate profits. In contrast, the risk of higher inflation and the possibility that the Federal Reserve (Fed) will hike rates faster than previously expected strengthen the case for a more cautious approach.

Globally, while we may be experiencing a synchronized upswing in growth, investors need to think in terms of stages of growth. Though the U.S. has enjoyed rising earnings-per-share estimates for some time, Europe and emerging markets (EM) forecasts are rising for the first time since 2011. Importantly, EM growth forecasts continue to be revised higher, which may widen the growth differential between EM and the U.S. in 2018.

Meanwhile, long-term bond investors have enjoyed an extended period of positive performance. While we see few reasons to expect big changes in bond market fundamentals in the near term, one challenge stands out: finding value among bonds. We’re seeing opportunities in mortgage credit and corporate securities in the U.S., along with select developed and emerging market bonds.

In this quarter’s Investment Outlook, you’ll learn more about our CIOs’ views on these and other topics, as well as their thoughts on managing risk and positioning retirement portfolios in this more volatile environment.

Thank you for investing with us.

12Key Takeaways

10Multi-Asset Strategies

9Global Fixed Income

6Global Equity

4Global Macroeconomic Outlook

Investment Outlook4

GLOBAL MACROECONOMIC OUTLOOK

Global Economy

Growth gathers momentum

U.S. Economic Growth Improves We believe the U.S. economic expansion appears sustainable and may accelerate modestly. Bolstered by consistently solid growth data and the potential for fiscal expansion to provide additional stimulus, gross domestic product (GDP) may reach the high end of our expected range of 2%-3% in 2018.

Central Bank Stimulus Drives Gains in Europe, Japan We believe accommodative central bank policy should continue to fuel modest growth in the eurozone and Japan. However, the U.K.’s growth outlook remains clouded by Brexit uncertainty.

Emerging Markets Poised for Good Growth We expect growth in developed markets, along with relatively contained global inflation and generally accommodative central banks, to support economic gains in emerging markets. As spending trends expand, we expect emerging markets growth to outpace that of developed markets.

Inflation

Global price movements muted

Technology, Competition Help Contain Price Hikes Although global inflation is trending upward, we see some obstacles to significant price gains. Most notable, technological advances and high labor capacity in Europe and emerging markets should limit global wage growth. Growing competition among retailers is also stifling inflation.

U.S. Inflation on the Upswing Given the recent upside surprise in inflation data, we are more confident that U.S. core inflation will continue to trend toward the Fed’s 2% target. Rising commodities prices coupled with solid global growth and modest wage growth should drive current inflation and inflation expectations modestly higher.

Inflation Mixed in Europe Despite its economic gains and ongoing central bank stimulus, the eurozone continues to face persistently weak inflation. Japan remains in a similar situation. But in the U.K., inflation remains near a six-year high.


Monetary Policy

Central banks pursue different paths

Fed Remains on the Road to Normalization We think the Fed likely will remain on its path toward interest rate and balance sheet normalization. New Fed Chair Jerome Powell suggested the central bank may turn more hawkish if the economy heats up. We believe inflation trends are key to Fed activity.

European Stimulus Slowing but Sticking Around Although the European Central Bank (ECB) launched a gradual tapering of its bond-buying program, it also indicated it may extend the program beyond its September expiration date. Rising inflation prompted the Bank of England (BoE) to raise rates in late 2017, but signaled a slow path for future rate hikes. Overall, we expect these central banks to remain generally accommodative.

Status Quo Central Bank Support in Japan Inflation in Japan reached a nearly three-year high in January, while annualized GDP increased for the eighth-straight quarter in December 2017, the longest stretch of growth since the ’80s. Nevertheless, actual inflation and growth rates remain modest. We expect the Bank of Japan (BoJ) to maintain its aggressive stimulus program.

Interest Rates

Rates on the rise

Treasury Yields Edge Higher Improving economic fundamentals and rising inflation, which helped push 10-year Treasury yields approximately 50 basis points higher during the first two months of 2018, should keep the 10-year Treasury yield in a range of 2.75%-3.25% this year. Meanwhile, the market is now aligned with the Fed’s interest rate outlook and is pricing in three rate hikes in 2018.

Rates Contained Globally Our research suggests modest global growth, relatively low inflation, and ongoing central bank stimulus in Europe and Japan should contain interest rates. Rates in the eurozone may edge higher as ECB tapering progresses. Rates likely will remain higher in the U.K., where the BoE recently began tightening.

Divergence a Factor for Developed Markets Given the U.S. is further along in the economic and monetary policy-normalization cycles, interest rates in the U.S. likely will remain higher than in other developed markets. This divergence is a factor inhibiting significantly higher rates in the U.S.

Investment Outlook6

GLOBAL EQUITYVictor Zhang, Co-CIO, American Century Investments: Keith, the return of volatility to the equity markets was inevitable. What’s your view of the more turbulent environment?

Keith Creveling, CIO, Global Growth Equity: The return of volatility is a reminder of how quickly sentiment can shift. Higher interest rates are changing the markets, reintroducing volatility after years of historically low levels of intra-day movement, and reducing correlations. Until recently, there was much higher correlation among sectors and individual stocks than the historical average. A return of volatility and lower correlations means bottom-up research will be more valuable in identifying companies with strong fundamentals and the potential to exhibit sustainable earnings growth.

What impact do you think U.S. tariffs will have on global trade?

Creveling: It’s hard to predict what the ultimate effect will be, though China has already announced plans to retaliate with higher tariffs on a list of U.S. products. While we think a full-scale trade war is unlikely, we appreciate the concern because tariffs and trade wars usually are not good for companies on either side.

In the near term, our portfolio teams are analyzing the potential impact of higher steel and aluminum prices on U.S. companies. For example, we believe industrial companies within our portfolios will be most affected since steel is an input for products such as power tools and large industrial machinery. Over time, we think businesses with strong product lines and the ability to pass along higher costs to their customers will fare the best under tougher conditions. Of course, not all companies facing higher steel and aluminum prices will be able to do this, which makes careful stock selection more important.

Taking a closer look at our global growth equity portfolios, we are maintaining relatively large U.S. positions even after the market’s strong advance. Are there common themes playing out among the key holdings?

Creveling: The portfolios’ country exposure is generally a residual of our bottom-up process. However, certain investments have the potential to benefit from recent market trends. We have increased exposure to numerous U.S. regional banks we believe are highly levered to tighter monetary policy.

Higher rates and inflation are also helping to create more of a stock picker’s market. Individual companies will be affected differently by inflation and its effects on the costs of doing business. In meetings with company management teams, we have heard many stories of tightening labor markets and the increasing costs of staffing up to meet growing demand as the economy strengthens. For example, trucking companies have related stories of significant wage inflation amid competition for experienced drivers. Inflation and its effect on commodities and materials costs is well documented, and some companies are being squeezed by increasing raw materials costs.

With that in mind, we are invested in U.S. companies where customer end demand remains strong, which better enables them to pass on higher costs to their customers.

Higher rates and inflation are helping to create more of a stock picker’s market. Individual companies will be affected differently by inflation and its effects on the costs of doing business.



Turning to value—Kevin, some of our portfolios are overweight information technology. What are the value teams seeing?

Kevin Toney, Co-CIO, Global Value Equity: We are finding semiconductor and semi-conductor equipment companies that meet our quality and valuation requirements. Many are benefiting from industry consolidation and strong demand driven by the secular shift to digital platforms. There’s been an exponential increase in the need for servers and data centers as individuals and businesses generate huge volumes of data that must be stored, managed, and processed as quickly and cost-efficiently as possible.

In addition, the industrial segment is a low-key but important driver of demand as semi-conductors facilitate increased automation on the factory floor, generate efficiencies, and reduce costs. The automotive industry is another fast-growing market for semiconductor devices because they play key roles in safety, infotainment, navigation, and fuel efficiency.

Where else are you finding value opportunities?

Toney: We have found select opportunities in energy. We generally believe the market focuses too heavily on the revenue side of oil producing companies, which is largely a function of the price of oil and natural gas. We take a more holistic view because we believe there are opportunities in companies that reduce production costs through efficiency gains and cost cutting, which can restore profitability levels, regardless of oil prices. Our goal is to hold attractively valued, higher-quality companies, including integrated oil companies with strong balance sheets and sustainable dividends. We also own some midstream master limited partnerships that we believe are more stable relative to peers.

Elsewhere, health care has been a political lightning rod, but volatility has created buying opportunities. For example, political rhetoric, along with concerns about existing portfolios and pipelines, have weighed on certain high-quality pharmaceutical companies. We also believe pharmacy benefit managers are attractive due to their important and constructive role in the value chain, high returns on capital, and high barriers to entry in the industry.

Phil, can you speak to the recent poor performance of real estate investment trusts, utilities, and consumer staples sectors over the last couple of years?

Phil Davidson, Co-CIO, Global Value Equity: Real estate investment trusts (REITs) have been particularly sensitive to rising interest rates, which has caused underperformance. New tax regulations will not materially benefit REITs, although some higher-income, taxable accounts may see a reduction in their tax rates. Utilities sector stocks generally underper-formed as the yields on U.S. Treasury securities rose. Changes in the tax code do not provide many benefits for utilities compared to other sectors. We believe that regulated utilities in the natural gas business generally have better fundamentals than electric utilities.

Consumer staples stocks, which offer investors quality and yield over time, have under-performed after a period of outperformance that reached a high point in 2016. Additionally, the sector faced headwinds, including increased competition, rising interest rates and stronger global economic growth trends that favored other sectors. New tax regulations may allow consumer staples companies to reinvest in their businesses, which should improve their longer-term prospects. We are increasing our weightings in select stocks on improved valuations.

New tax regulations may allow consumer staples companies to reinvest in their businesses, which should improve their longer-term projects.

PHILLIP N. DAVIDSON, CFACo-Chief Investment Officer Global Value Equity

Health care has been a political lightning rod, but volatility has created buying opportunities.

KEVIN TONEY, CFACo-Chief Investment Officer Global Value Equity

Investment Outlook8

GLOBAL EQUITYTurning to Europe, ongoing central bank stimulus policies and strengthening economic growth are driving earnings improvement. Keith, are there worries about what will happen if stimulus is withdrawn?

Creveling: The ECB has indicated it plans to taper quantitative easing at some point, perhaps later this year. It remains to be seen how markets will react when that begins. If well telegraphed by the ECB, we may not see a “taper tantrum” to the extent we did when the Fed did the same in the U.S. Regardless, the outlook for corporate earnings growth remains positive amid low inflation and improving global demand trends.

Trends also have been positive in Japan, which was a top-performing market in 2017. The country has seen significant stabilization in both industrial- and consumer-related sectors. We believe Japanese manufacturers and exporters are benefiting from a pickup in global demand, including strong demand from key trading partners in China and EM. Domestic demand has also picked up with increasing consumer confidence and low unem-ployment. This could favor consumer-oriented names sharing in the economic expansion.

As in the U.S., the long emerging markets rally has led to concerns about the sustainability of the bull market. Should we be worried that the EM rally is on its last legs?

Creveling: In our view, the rally will continue to be sustained by synchronized global growth and improvement in local markets. As we have discussed, consumer and business confidence continues to grow in developed markets, which benefits EM companies serving those markets. Further, local EM markets are improving in their own right. As a result, there is growing demand for higher quality consumer products, luxury items, as well as services such as health care, education, and financial services. This is all underpinned by a generally positive economic environment. Central banks still have room to cut rates if additional stimulus is needed.

Cleo, we opened our discussion talking about higher levels of volatility and rising interest rates. Most investors today have faced volatility in financial markets, but not an extended period of rising interest rates. What are some alternatives for them to consider?

Cleo Chang, Head of Alternatives: We may be on the cusp of an era where concerns over rising rates and other circumstances could hurt returns for both stocks and bonds. As a result, investors may need to look beyond traditional approaches. For example, since market neutral strategies often have a low or negative correlation to equity and fixed income markets, they are often used by investors seeking to manage volatility and the impact of severe market swings. Long/short equity strategies are another consideration. They tend to follow the markets more closely with a net long exposure that benefits from rising markets. However, their sizable short positions seek to capture gains when stock prices fall, which can help reduce downside losses.

Overall, we believe alternatives can help investors meet multiple goals, including growing capital, generating income, and protecting gains. When markets turn more volatile, as they have in early 2018, alternatives may prove to be worthwhile complements to more traditional strategies.

Consumer and business confidence continues to grow in developed markets, which helps benefit EM companies serving those markets.


When markets turn more volatile, as they have in early 2018, alternatives may prove to be worthwhile complements to more traditional strategies.



We think 10-year Treasury note yields will continue to inch higher, as high as 3.25%, but likely will ease back by year-end.

We believe collateralized loan obligations offer opportunities in the current climate, due to their attractive spreads, floating rates, and generally low default risk.



Dave, has today’s more volatile climate altered your outlook for bonds?

G. David MacEwen, Co-CIO, American Century Investments | CIO, Global Fixed Income: We had been expecting an uptick in volatility for some time, so the events of early 2018 did not cause us to significantly change our positioning or outlook. In general, we continue to favor mortgage credit and corporate securities in the U.S., along with select non-U.S. developed market and EM bonds. In the U.S., we think 10-year Treasury note yields will continue to inch higher. We believe they could climb as high as 3.25%, but we also think they likely will ease back by year-end. Inflation has edged higher recently, but given automation advances and global labor capacity, we do not believe inflationary pressures are strong enough to drive interest rates significantly higher, at least in the near term. Overall, we expect U.S. inflation to increase modestly but generally remain contained, which should give the Fed the ability to maintain its gradual rate-tightening strategy. Outside the U.S., we expect inflation to remain muted and central banks to remain accommodative. The exception is the U.K., where inflation topped 3% in November 2017, a level that prompted the BoE to raise interest rates for the first time in a decade. However, the BoE has held rates steady at 0.50% since then.

Back to the U.S. market, it’s important to note that credit spreads generally have not materially widened. This is a positive signal, as it suggests investors remain optimistic about the financial health of corporations.

The rising-rate environment has created nervousness among bond investors, particularly those invested in government bonds and other securities most influenced by rate movements. Cleo, what are some alternative strategies that income investors worried about rising interest rates could consider?

Chang: For investors seeking to generate income and preserve capital, we think diversifying across a broad range of income-generating securities, including bank loans, structured credit, and high-dividend stocks makes sense. These and other income-generating securities typically deliver performance that is uncorrelated with traditional government bonds and may help investors generate income and preserve capital in volatile rate environments.

For example, we believe bank loans are attractive, as they typically perform well in periods of rising interest rates. We also see value among select asset-backed securities, particularly in the automobile and consumer lending industries. Furthermore, we believe collateralized loan obligations offer opportunities in the current climate, due to their attractive spreads, floating rates, and generally low default risk.

Another big event for the financial markets in early 2018 was the change of leadership at the Fed. Do you think the Fed is likely to turn more hawkish, given the economic backdrop and installation of new Chair Jerome Powell?

MacEwen: We believe the Fed remains committed to gradually increasing short-term interest rates and normalizing its balance sheet under Powell, who holds similar monetary policy views as his predecessor, Janet Yellen. If the Fed turns slightly more hawkish, we think it will be due to economic factors, rather than Fed leadership. The new chair has indicated the Fed remains on track to lift rates three times in 2018, but he also suggested the central bank would tighten more aggressively if economic growth surprises to the upside. We initially were somewhat skeptical of the Fed’s rate-hike outlook when Yellen announced it in late 2017. However, since then, U.S. economic and inflation data have strengthened modestly, and we believe three rate hikes—and possibly, four—are likely in 2018.

GLOBAL FIXED INCOME

Investment Outlook10

MULTI-ASSET STRATEGIES Rich, we do these outlooks quarterly, but you are always quick to remind us to take a longer, full-cycle view of markets and the economy. How should we think about managing risk at present given this longer-term view?

Rich Weiss, CIO, Multi-Asset Strategies: I think it is easy to forget how simple investing looks in a one-way market. When you are nine years into a bull market, talk of diversification and risk management seem out of place, or downright silly. But if you think of retirement investing as 30 or 40 years or more of contributions funding 20 or 30 years or more of withdrawals, suddenly a five- or even nine- or 10-year window seems much less significant. As a result, we believe that investors should think about positioning their retirement portfolios for one (or more) entire market cycles and the competing risks they face over such a long horizon.

Behavioral finance is really important here—we know that people have short memories and tend to add risk or buy stocks near the peak because of a fear of missing out. Similarly, investors tend to abandon their saving and investing plans after market declines if they are not sufficiently diversified. What’s more, one of the biggest issues we see is that investors often focus on one type of market or one source of risk, and so are ill-prepared for the full range of challenges that are prevalent at different times in their investing lives. So, we consistently argue for a more comprehensive view of risk, one that should be addressed within the context of the total portfolio over a full market cycle.

What economic and market risks are you watching now, and how do you think about positioning for those challenges?

Weiss: Let’s take two that are prominent in the news of late—higher interest rates and inflation. Our fixed income team has been revising up its forecasts for both rates and inflation in recent months as fiscal policy turns from a headwind (budget cuts, government shutdown) into a tailwind (tax cuts, massive deficits, deregulation, and muted infrastructure spending). And while it is hard to know exactly how a potential trade war would turn it, higher tariffs are inflationary, all else equal. Add it all up, and our bond managers believe we are well on our way to reaching the Fed’s stated 2% inflation target. To underscore this point, a number of Federal Reserve Board governors have given speeches suggesting that they would be okay with inflation overshooting their target temporarily.

We think active strategies are preferred to passive at such times precisely because of this emphasis on risk management—we believe investors should take very specific and intentional risks to achieve desired outcomes. Passive strategies essentially abdicate important allocation decisions to the market and typically accentuate valuation and concentration risks precisely when these risks are greatest. In fixed-income terms, this means that portfolio duration, yield curve, credit, and sector exposures may well be out of whack after years of record-low interest rates and unprecedented policy. To cite just one example—late last year, before the recent bond market sell-off, the yield on the Barclays U.S. Aggregate Bond Index was near a record low, while its duration was at an all-time high.

Similarly, we would argue against naïve allocation approaches that hold a steady weighting to an asset class regardless of where you are on your path to retirement. So, for example, a 10% allocation to EM debt might be great 20 years before retirement, but might not be appropriate for the same investor 20 years after retirement. Add it all up, and we believe

We consistently argue for a more comprehensive view of risk, one that should be addressed within the context of the total portfolio over a full market cycle.



the best approach is one designed to actively and intentionally balance inflation and interest rate risk within the context of the total portfolio (including equities) consistent with an investor’s risk tolerance and time to retirement or other goal, among other factors.

What’s your view on stocks shorter term and in this larger, retirement context?

Weiss: It is certainly possible to make a positive case for U.S. equities in the short run—economic growth is reasonably strong, corporate earnings growth is quite good as companies benefit from deregulation and tax cuts, and we are seeing repatriation of cash held overseas. That money is likely to be put to use in shareholder-friendly ways, including dividend payouts and share repurchases. And it is true that as a result of the recent correction in stocks, valuations are a bit less stretched than they have been. Nevertheless, we should point out that valuations in the U.S. remain quite high by historical standards and relative to other developed markets.

We think active strategies are preferred to passive at such times precisely because of this emphasis on risk management—we believe investors should take very specific and intentional risks to achieve desired outcomes.



KEY TAKEAWAYS

2018 | Q2 CIO Roundtable: Avoiding Complacency

We can make a positive case for U.S. equities in the short run, but expected returns over the intermediate term are less attractive given where we are in the economic and market cycles.

The shift to digital platforms continues to create opportunities globally for growth and value managers alike, albeit in different sectors and industries.

Value investors are finding opportunities in the energy sector, where the market has been overly focused on commodity prices, and in health care where hot political rhetoric has created buying opportunities.

We see room for EM stocks to continue to gain. We believe the catalysts of synchronized global growth and improving local markets are sustaining the rally and helping companies generate earnings growth.

The risk of a correction in equity factor performance is elevated given the market’s gravitation toward high-momentum and high-growth stocks.

In U.S. fixed income, we are still finding value among investment-grade corporate bonds, particularly those with BBB credit ratings, but we are avoiding the riskiest segments of the high yield sector.

We expect the wide spread differential between U.S. and European rates to narrow. Long positions in U.S. Treasuries and short positions in European government bonds may be beneficial in this scenario.

In EM, tight spread levels suggest reducing exposure to U.S. dollar-denominated debt in favor of local currency exposure.

We believe alternative sources of yield, such as bank loans, select asset-backed securities and collateralized loan obligations, offer opportunities in the current climate.


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Global Growth Equity

Global Value Equity

Disciplined Equity

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Multi-Asset Strategies

Alternatives


GLOSSARY Agency Collateralized Mortgage Obligations (CMOs). A form of securitized debt (defined below) backed by pools of residential mortgages and their payments.

Alternative Investments. Funds that hold a variety of non-traditional investments and often employ more complex trading strategies. Alternative asset classes and investment strategies have unique risks making them more suitable for investors with an above-average tolerance for risk.

Asset-Backed Securities (ABS). A form of securitized debt (defined below) backed by assets that include such items as auto loans, home equity loans, student loans, small business loans, and credit card debt.

Bloomberg Barclays U.S. Aggregate Bond Index. Represents securities that are taxable, registered with the Securities and Exchange Commission, and U.S. dollar-denominated. The index covers the U.S. investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.

Bank Loans. Bank-financed debt for companies with below-investment grade credit ratings.

Basis Points. Used in financial literature to express values that are carried out to two decimal places (hundredths of a percentage point), particularly ratios, such as yields, fees, and returns. Basis points describe values that are typically on the right side of the decimal point--one basis point equals one one-hundredth of a percentage point (0.01%).

BBB Credit Rating. Securities and issuers rated AAA to BBB are perceived to be “investment-grade”; those below BBB are considered non-investment-grade or more speculative.

Collateralized Loan Obligations (CLOs). A form of securitized debt (defined below), typically backed by pools of corporate loans and their payments.

Correlation. Correlation measures the relationship between two investments— the higher the correlation, the more likely they are to move in the same direction for a given set of economic or market events.

Credit Ratings. Measurements of quality assigned by a Credit Rating Agency (CRA) to issuers of certain types of debt obligations as well as the debt instruments themselves.

Derivatives. Securities whose performance and/or structure is derived from the performance and/or structure of other assets, interest rates, or indexes.

Dividend. Payment of a company’s earnings to stockholders as a distribution of profits.

Duration. A measure of the price sensitivity of a fixed income investment to changes in interest rates. The longer the duration, the more a fixed income investment’s price will change when interest rates change.

Earnings per Share (EPS). The portion of a company’s profits allocated to each outstanding share of its common stock. It is as an indicator of a company’s profitability.

Federal Reserve (Fed). The U.S. central bank responsible for monetary policies affecting the U.S. financial system and the economy.

Fixed Coupon Agency Mortgage-Backed Security (MBS). The coupon interest rate is the stated/set interest rate assigned to each interest-paying fixed-income security when it is issued. It is used to calculate the security’s periodic interest payments to investors; the coupon rate is applied to the security’s principal value to generate interest payments.

Fixed-Rate Bond. A bond with a set interest rate over its entire term.

Floating-Rate Collateralized Loan Obligations (CLOs). A form of securitized debt (defined below), typically backed by pools of corporate loans and their payments, that pay an adjustable rate of interest tied to a representative interest rate index such as the London Interbank Offered Rate (LIBOR).

Gross Domestic Product (GDP). A measure of the total economic output in goods and services for an economy.

Futures Contract. A futures contract is an agreement to buy or sell a specific amount of a commodity or financial instrument at a particular price on a stipulated future date. Futures contracts are typically used as a hedging/risk management tool in portfolio management.

Futures Price. A price established by contract as an obligation to buy or sell a specified quantity of a commodity or financial asset at the specified price today for future delivery.

High-Yield Bonds. Fixed income securities with lower credit quality and lower credit ratings. High-yield securities are those rated below BBB- by Standard & Poor’s.

Investment-Grade Corporate Bond. A debt security with a relatively low risk of default issued and sold by a corporation to investors.

Long Position. Typical ownership of an investment; it gives the owner the right to transfer ownership, any income generated by the asset, and any profits or losses.

Long/Short Position. An investing strategy that involves taking long positions in assets that are expected to increase in value and short positions in assets that are expected to decrease in value.

Market Neutral. Equity market neutral strategies seek to eliminate the risks of the equity market by holding up to 100% of net assets in long equity positions and up to 100% of net assets in short equity positions. These strategies attempt to exploit differences in stock prices by being long and short in stocks within the same sector, industry, market capitalization, etc. If successful, these strategies should generate returns independent of the equity market.


Master Limited Partnerships (MLPs). Publicly traded, generally higher yielding securities of enterprises that engage in certain businesses, usually pertaining to the use of natural resources.

Mortgage-Backed Securities (MBS). A form of securitized debt (defined below) that represents ownership in pools of mortgage loans and their payments.

Municipal Bonds. These are long-term municipal securities (defined below) with maturities of 10 years or longer.

Municipal Securities (Munis). Debt securities typically issued by or on behalf of U.S. state and local governments, their agencies or authorities to raise money for a variety of public purposes, including financing for state and local governments as well as financing for specific projects and public facilities.

Non-Agency Commercial Mortgage-Backed Securities (CMBS). Represent ownership in pools of commercial real estate loans financing construction of income-producing properties, including office buildings, shopping centers, industrial parks, and hotels. Typically issued by financial institutions, they are not guaranteed by the U.S. government or a government-sponsored enterprise.

Price Changes from Market Changes (for bonds and other fixed-income securities).Short-term price changes reflected in the daily market pricing of fixed-income securities prior to maturity; can reflect market adjustments in inflation expectations, credit quality perceptions, and/or interest rate levels. These price changes are not locked in unless the security is sold prior to maturity.

Quantitative Easing (QE). A form of monetary policy used by central banks to stimulate economic growth. In QE, a central bank (such as the U.S. Federal Reserve) buys domestic government securities to increase the domestic money supply, lower interest rates, and encourage investors to make investments in riskier assets such as stocks and high-yield securities.

Real Estate Investment Trust (REIT). Securities that trade like stocks and invest in real estate through properties or mortgages.

S&P 500® Index. Composed of 500 selected common stocks most of which are listed on the New York Stock Exchange. It is not an investment product available for purchase.

S&P 500® Growth Index. A style-concentrated index designed to track the performance of stocks that exhibit the strongest growth characteristics by using a style-attractiveness weighting scheme.

S&P 500® Low Volatility Index. An index that measures performance of the 100 least volatile stocks in the S&P 500.

S&P 500® Momentum Index. An index designed to measure the performance of securities in the S&P 500 universe that exhibit persistence in their relative performance.

S&P 500® Pure Value Index. A style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics by using a style-attractiveness weighting scheme.

S&P 500® U.S. Quality Index. Designed to track high-quality stocks in the S&P 500 by quality score, which is calculated based on return on equity, accruals ratio and financial leverage ratio.

Securitized Debt. Results from aggregating debt instruments into a pool of similar debts, then issuing new securities backed by the pool.

Short Position. Refers to the sale of an asset borrowed, not owned, by the seller in anticipation of a price decline. If the seller can buy the asset later at a lower price, a profit results. If the price rises, the borrower/seller suffers a loss.

Spreads, Credit Spreads. Measured differences between two interest rates or yields that are being compared with each other. Spreads typically are measured between fixed income securities of the same credit quality, but different maturities (“maturity spreads”), or of the same maturity, but different credit quality (“credit spreads”).

Structured Credit. An alternative debt instrument that involves pooling debt obligations and redistributing the cash flows from the entire pool rather than from each individual security. Examples include CLOs and collateralized mortgage obligations.

Subordinated Debt. A loan or security that ranks below other loans or securities with respect to claims on assets or earnings.

Total Return. For bonds and fixed-income securities, a standard performance measurement that incorporates income (primarily from interest payments) and changes in the prices of the securities; a more complete measurement than yield alone.

Treasury Inflation-Protected Securities (TIPS). Inflation-linked debt securities issued by the U.S. Treasury.

Treasury Note. A debt security issued by the U.S. government with a fixed interest rate and maturity ranging from one to 10 years.

Treasury Yield. The yield of a Treasury security (most often refers to U.S. Treasury securities issued by the U.S. government).

Treasury Inflation-Protected Securities (TIPS). Inflation-linked debt securities issued by the U.S. Treasury.

Yield. The rate of return on bonds and other fixed-income securities.

Yield Curve. A line graph showing the yields of fixed-income securities from a single sector from a range of different maturities at a single point in time.

American Century Investment Services, Inc., Distributor ©2018 American Century Proprietary Holdings, Inc. All rights reserved.IN-BKT-93952 1804 NON-FDIC INSURED • MAY LOSE VALUE • NO BANK GUARANTEE

American Century Investments® is a leading asset manager focused on delivering investment results and building long-term client relationships while supporting research that can improve human health and save lives. It’s how we and our clients together Prosper With Purpose.®

Every day people are increasingly focused on investing to make the world a better place for themselves, their families, their organizations and the world at large. It is possible to live a more meaningful and impactful life and give back something that’s more valuable than money.

When you invest with us, you can also invest in the future of others and have the potential to impact the lives of millions. That’s possible because of the distinct relationship with the Stowers Institute for Medical Research, which owns more than 40% of American Century. Our dividend payments provide ongoing financial support for the Institute’s work of uncovering the causes, treatments and prevention of life-threatening diseases, like cancer. Together we can become a powerful force for good.

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References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.

Historically, small- and mid-cap stocks have been more volatile than the stocks of larger, more established companies.

Diversification does not assure a profit nor does it protect against loss of principal.

Generally, as interest rates rise, bond values will decline. The opposite is true when interest rates decline.

Past performance is no guarantee of future results. Mutual fund investing involves market risk. Investment return and fund share value will fluctuate. It is possible to lose money by investing in mutual funds.

The opinions expressed are those of the chief investment officers and are no guarantee of the future performance of any American Century Investments portfolio. Statements regarding specific holdings represent personal views and compensation has not been received in connection with such views.

This information is not intended to serve as investment advice. 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.

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