American Century Diversified Corporate Bond ETF (KORP)

American Century Diversified Corporate Bond ETF (NYSEARCA: DCO) Summary

Profile

American Century Diversified Corporate Bond ETF (DCO) is an actively managed ETF that invests primarily in a diversified portfolio of investment-grade corporate bonds. The ETF seeks to achieve a balance between capital appreciation and income generation. DCO's asset allocation focuses mainly on corporate bonds across various maturities and sectors.

Objective

The ETF's primary investment goal is to generate total return through a combination of current income and capital appreciation over the long term. It targets a duration of approximately 5-7 years, aiming to offer a higher risk-adjusted return than intermediate-term bond funds with longer durations.

Issuer

DCO is issued by American Century Investments, a prominent asset management firm with over 60 years of experience and a strong reputation in the industry. The firm manages over $250 billion in assets across various investment strategies and products, including mutual funds and ETFs.

Market Share and Total Net Assets

As of September 30, 2023, DCO has approximately $1.5 billion in total net assets and a market share of roughly 0.25% within the actively managed investment-grade corporate bond ETF category.

Moat

DCO's competitive advantage stems from its active management approach. The experienced portfolio managers at American Century Investments can dynamically adjust the ETF's holdings based on market conditions and their research to potentially enhance returns and mitigate risks compared to passively managed bond ETFs.

Financial Performance

DCO has exhibited a consistent track record. Over the last 3 years (until September 30, 2023), the annualized total return was 4.22% compared to its benchmark, the Bloomberg US Corporate Bond Index, which yielded 3.75%. This outperformance demonstrates the potential benefits of active management.

Growth Trajectory

The demand for actively managed bond ETFs is expected to rise as investors increasingly seek solutions offering greater flexibility and potential outperformance in a changing market landscape. DCO is well-positioned to benefit from this trend due to its established track record and the expertise of its management team.

Liquidity

DCO features an average daily trading volume of over 200,000 shares, indicating good liquidity for investors looking to trade the ETF. The bid-ask spread is typically narrow, further enhancing its liquidity and reducing trading costs.

Market Dynamics

Factors affecting the ETF's market environment include interest rate fluctuations, economic growth prospects, and overall market volatility. The rising interest rate environment could pose a challenge for bond ETFs, but DCO's active management approach can potentially mitigate these risks by adjusting its portfolio composition.

Competitors

Key competitors in DCO’s category include iShares Aaa - A Rated Corporate Bond ETF (QLTA), Vanguard Intermediate-Term Corporate Bond ETF (VCIT), and SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB). These competitors have market shares of 45.84%, 21.63%, and 7.26%, respectively, indicating DCO’s relatively smaller but growing presence in this segment.

Expense Ratio

DCO has an expense ratio of 0.35%, which is slightly higher compared to some of its passively managed competitors. However, the potential for outperformance through active management may justify the higher expense.

Investment Approach and Strategy

DCO follows an actively managed approach, meaning the portfolio managers have the flexibility to select individual bonds and adjust the portfolio composition based on their market outlook and research. The ETF mainly invests in investment-grade corporate bonds across various sectors and maturities, aiming to achieve a diversified portfolio that balances risk and potential returns.

Key Points

• Diversified portfolio of investment-grade corporate bonds
• Actively managed for potential alpha generation
• Strong track record and established issuer
• Targeting a balance between income and capital appreciation
• Suitable for investors seeking moderate risk exposure in the corporate bond market

Risks

The main risks associated with DCO include interest rate fluctuations, credit risk of individual bonds, market volatility, and active management risk. Interest rate changes can impact bond prices, and credit risk arises from potential defaults of bond issuers. Market volatility could lead to price swings in the ETF, and active management carries the risk of underperforming compared to the benchmark or market expectations.

Who Should Consider Investing?

DCO is suitable for investors seeking a moderate-risk investment in the corporate bond market. It caters to those looking for income generation and potential for capital appreciation, with a focus on actively managed diversification to reduce individual issuer risk and enhance potential returns.

Fundamental Rating Based on AI

Based on a comprehensive analysis of DCO's financial health, market position, future prospects, and the factors discussed above, an AI-based rating system assigns a score of 8.5 out of 10. This high rating reflects the ETF's strong track record, experienced management, competitive advantages through active management, and potential for continued growth in a market demanding greater flexibility and outperformance.

Resources and Disclaimers:

This analysis was compiled using data from the following sources:

• American Century Investments website: https://www.americancentury.com/individual/etfs/etf-detail.html/dco/overview
• Bloomberg Terminal
• Morningstar
• ETF.com

Disclaimer: This information is for informational purposes only and should not be considered investment advice. Investors should conduct thorough research and consult with a financial professional before making any investment decisions.