GSAM makes ETF debut in Europe

Sep 26th, 2019 | By | Category: Equities

Goldman Sachs Asset Management (GSAM) has made its exchange-traded fund debut in Europe with the launch of the Goldman Sachs ActiveBeta U.S. Large Cap Equity UCITS ETF (GSLC LN) on London Stock Exchange.

Goldman Sachs makes ETF debut in Europe

Goldman Sachs Amakes ETF debut in Europe

This fund is effectively a Dublin-domiciled version of its highly successful flagship ETF in the US, the NYSE Arca-listed Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC US).

This fund – part of a suite of so-called ‘ActiveBeta’ ETFs – has gathered in excess of $6.5 billion in assets and is presently the largest multi-factor equity ETF in the world.

Both funds are linked to the Goldman Sachs ActiveBeta US Large Cap Equity Index, a proprietary index designed to provide higher returns at similar or lower levels of risk, as measured by volatility and drawdown, relative to traditional market-cap weighted indices.

It sets out to achieve this by systematically exploiting four well-established equity factors – value, momentum, quality and low volatility.

The index is built from a universe of constituents that corresponds to the Solactive US Large Cap Index (excluding the stock of Goldman Sachs) which comprises the 500 largest companies in US based on free float market capitalization.

The construction process involves two steps. In the first step, four sub-indices are determined, one for each factor, by assigning eligible constituents a score for each of the four factors based on financial and technical attributes. Constituents are over- or under-weighted in these four single-factor sub-indices according to factor rank.

In the second step, the four sub-indices are equally weighted with offsetting positions calculated and netted off to determine the final index weights, subject to various weight constraints to control industry group biases. The index is rebalanced quarterly but constituents are allowed to deviate either side of their target weights within a range to reduce portfolio turnover.

The result of this two-step process is an index that, over the course of an investment cycle, should exhibit superior value, momentum, and quality characteristics and with lower volatility versus comparable market cap-weighted indices, such as the S&P 500.

A quick glance over the largest holdings reveals that it is underweight US mega-cap technology stocks (i.e. Microsoft, Apple, Alphabet, Amazon, Facebook). That said, the index is overweight the Technology sector as a whole, suggesting a preference for smaller-sized tech companies. The most overweight sector is Consumer Discretionary followed by Consumer Staples. Energy and Financials are the most underweight sectors.

The ETF has been seeded with $2m and is set to be cross-listed on several exchanges across Europe in the near future. It comes with a total expense ratio of 0.14% and is physically replicated.

Today’s launch looks set to be the first of many. The Wall Street giant has announced plans to launch a range of ETFs in Europe providing access to a number of geographic markets, asset classes and investment styles. A look at GSAM’s product suite in the US offers an indication of the likely direction of travel the firm is set to take in Europe. There it offers some 19 ETFs including equity, fixed income and thematic exposures.

Peter Thompson, Head of GSAM’s European ETF Business, said, “GSAM ETFs will be smart, simple and accessible. The suite of products we plan to launch in the coming months will enable our clients to build diversified global portfolios using a mix of active and passive investment styles. We are focused on building this business for the long-term and believe we can provide superior choice and performance to our clients through this product range.”

Nick Phillips, Head of the International Retail Client Business at GSAM, added, “Our global clients are demanding more choice in their portfolios and we are excited to complement our existing fund range with ETFs that we believe can help simplify portfolio construction and contribute to superior risk-adjusted returns. The funds will be relevant to both retail and institutional clients. This is a significant addition to our international product offering and we are tremendously excited to enter the fast-growing European ETF market.”

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