Goldman Launches Smart Beta ETFs at Discount Prices

In hindsight, it appears that The Goldman Sachs Group, Inc. (GS) was biding its time and waiting to enter the exchange-traded fund (ETF) game with a winning set of offerings. The big bank and asset manager began to explore the exchange-traded note (ETN) space back in 2007, and it was only in 2015 that Goldman began its first ETF.

This product – the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC) – has gone on to see tremendous success. As a report by notes, GSLC accumulated $100 million in assets in just two months and $1 billion in a year. Capitalizing on Goldman's top position in other areas of the investment space, GSLC was able to offer a multi-factor approach to U.S. large-cap equities at an expense ratio of just 0.09%.

Since its first ETF in 2015, Goldman has gone on to launch roughly a dozen other smart beta funds. In the ETF space, investors expect incredibly low fees. One important aspect of Goldman's ETF strategy is that the fees are about as low as they come. With smart beta strategies at vanilla index prices, Goldman has hit upon a combination that has proven incredibly enticing to ETF investors. (See also: Goldman Launches Impact ETF Based on Paul Tudor Jones Ranking.)

More than $9.3 Billion in AUM

As of Aug. 31, 2018, the 12 ETFs on the Goldman Sachs Active Management offerings list held more than $9.3 billion in total assets under management (AUM). Of these 12 offerings, the largest remains GSLC, with just under $4 billion in AUM. GSLC also offers the lowest expense ratio of Goldman's ETFs, alongside the Equal Weight U.S. Large Cap Equity ETF (GSEW), which also sports a cost of just 0.09%. Of the dozen offerings, none has an expense ratio higher than 0.45%, and the average expense ratio is approximately 0.24%.

Most of these products begin with a sector or market segment that is typically covered by a vanilla product and then add a factor or smart beta component as well. There are six ActiveBeta equity ETFs, for instance, each of which ranks potential holdings by four factors. These funds then combine the results into a multi-factor, blended index. There are three Access fixed-income products, which employ fundamental analysis and liquidity constraints in order to tease out the strongest performers among a large pool of bond issuers. (See also: The Emergence of Multi-Factor ETFs.)

Besides the many smart beta ETFs, there are other strategies as well. The Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST) still finds a way to set itself apart from similar products by other issuers. JUST is a socially responsible fund that tailors its holdings to match the priorities of its investors.

Commensurate Performance

While Goldman's ETFs are highly competitive with regard to cost, low fees also mean relatively low returns. According to, "most of the firm's funds hug their respective segment benchmarks fairly closely, and although on a one-year basis all Goldman ETFs outperform the top competing fund in the space, most do so by a percentage point or less." GSLC, for instance, had a year-to-date return through Aug. 31, 2018, of 10.75%. This performance is strong, but it is only just over a percentage point higher than the SPDR S&P 500 ETF (SPY), which saw a return of 9.57% over the same period.

Eking out a small advantage over competitors is still enough for Goldman's ETFs to be very enticing for investors. GSLC is a whole 41 basis points cheaper than the average large-cap equity ETF. For Goldman, the approach of finding a popular vanilla ETF and then generating a multi-factor vehicle that is then heavily discounted has so far proven to be highly successful. While not all of Goldman's ETFs are cheaper than their rivals, the trend seems to be toward lower and lower fees, which is sure to make investors happy. (For additional reading, check out: Goldman ETF Offers Multi-Factor Approach to Developed Markets.)

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