American Century Investments

Business Challenge

With over 50,000 issuers and new bond deals coming to the market each week, the municipal bond market can be overwhelming for any investment team. At American Century Investments (ACI), the municipal credit team is smaller relative to its peers managing similar asset sizes. ACI wanted to leverage data to evaluate more effectively which credits to focus on from the upcoming week’s deals while also casting a wider net from which to capture. ACI knew that analyst time has been constrained due to the lack of standardization in municipal daily disclosure and new issue documentation, and its length of 250+ page documents has made it difficult to quickly find important terms. The company strategized how it could streamline and simplify this process by leveraging new technology and techniques — freeing up valuable time for analysts and helping them to make data-informed decisions on the worthy credits to review for purchase in ACI funds.

Analytics Solution

ACI has experimented with natural language processing (NLP), optical character recognition (OCR) and machine learning to extract keywords and topics from documents to automate processes. The company applied these tools and techniques in a small proof-of-concept for the municipal credit initial offering document and ongoing disclosure documents and showed the potential benefits of continued experimentation. ACI partnered with a group of Drexel LeBow business analytics students to automate an NLP-driven summary sheet, which generated additional derived metrics that allowed analysts to measure and compare bonds, relative metrics and ratings such as weighted average of yield and credit quality score and weighted average of risk metrics.

Impact

The OCR and NLP-powered business term and bond measure extraction delivered the right level of detail for analysts to quickly respond to new offerings or make changes when disclosures show emerging trends. Bolstered by sector-specific business logic, additional bond analytics enable the credit analyst team to measure bonds relative to existing agency ratings as well as homegrown metrics. The end product highlighted the need for continued research, analytics and insights to support the municipal credit sectors. The team expects this and other related analytic builds to save hundreds of hours per year, making analysts more productive as well as empowering them with the right data to make informed and timely trade decisions on bonds.

The innovation program was formed about two years ago to funnel new ideas inside ACI and scale them to fully implemented business models. Innovation partnerships with academic institutions leverage research and student participation in the innovation process to contribute to ACI, as well as further students’ education and employment. The Innovation Lab is a dedicated team exploring new technology and experimenting through prototypes to measure future business value through implementation.