By Christopher WhipplePublished November 10, 2019 11:17:21When I first started researching this article, I thought I had a winner on my hands.
I had stumbled upon an interesting new way to invest in American Century Investments, an investment fund that specializes in high-yield bonds that mature in 20 to 25 years.
In other words, bonds that have a low probability of ever being purchased by the private equity investor.
In contrast, the majority of high-growth bonds are bought for decades.
But I soon learned that American Century’s investments are in far more riskier and higher-yielding bonds than anyone would have guessed.
They also have higher risk, because the funds own many of the companies that have the highest probability of holding on to them.
As a result, many investors have lost money on their American Century investments, and many others have lost a lot more.
In my new book, The American Century Investment Company: The Business and Financial World of American Century, I describe the many risks of American Pacific Capital Management, the fund that owns American Century.
American Pacific Capital is the private-equity fund that manages the portfolio of American Centuries, which have the same risk profile as the high-quality bonds, but with significantly lower prices.
In fact, American Pacific owns American Century bonds at a much lower price than it does the more expensive bonds it manages.
For example, American Century bonds have a 10-year yield of 4.67%, while the yield on a 10 year Treasury bond has a 4.8% yield.
When I analyzed the American Century bond portfolio in the book, I discovered that the fund’s portfolio of high quality bonds has a 10% yield but a yield of just 3.67%.
(The fund has also sold many of its bonds.)
These bonds, which are backed by real estate and are subject to high-level credit ratings, are priced so high that they are effectively cheap.
For example, a bond that is priced at $2.50 an share and yields 2.6% today, would be worth $5,000 today if it were backed by the same kind of credit rating as a bond issued by American Century itself.
The fund is also notorious for selling high-risk bonds to private equity firms, including a group of investors who purchased a huge portion of American’s portfolio in late 2015 and early 2016.
But they were forced to sell those bonds to avoid potentially higher rates and fees.
I am not suggesting that the American Pacific bonds sold by these investors are the same ones that American Pacific itself sold.
But American Pacific is known to be a high-cost investor, and if American Pacific does not buy American Centurs bonds at prices that are competitive with its own, American’s bonds may have little or no value for the investors it manages, or the bond buyers might be disappointed.
While the fund has a high rate of return, it is far from perfect.
American Pacific has a tendency to sell investments that it believes are cheap, such as a high return on a small portfolio of bonds.
That’s a risk for many investors who are willing to wait until a big market crash for an investment that is cheap.
For instance, American National Mortgage Association and American National Home Builders have been both successful in selling the same kinds of high growth bonds.
But in the case of American National’s high-grade bonds, the firm sold bonds priced at about 5% above the bond’s face value, and sold bonds with a 6% discount rate, while American National sold bonds at less than 2% above its face value.
While American Pacific’s bonds are risky, it has a better track record in investing in high quality high-end bonds.
When it sells American Century Bond ETFs, the company typically sells bonds priced around 10% above face value or 5% below face value and then pays the difference.
American Century’s investment in American Centurys bond portfolio is a good example of how a fund can be profitable while not losing a huge amount of money.
When the American Centural bonds it holds sell, AmericanPacific’s portfolio returns a huge profit.