Goldman Sachs Asset Management (GSAM) has launched the Goldman Sachs Access Investment Grade Corporate Bond ETF (NYSE Arca: GIGB), tracking the performance of US dollar-denominated investment grade corporate bonds.
The Goldman Sachs Access Investment Grade Corporate Bond ETF utilizes a fundamentals screening process to avoid bonds thought to have a high default probability.
The fund is the first to be rolled out under GSAM’s ‘Access’ ETF series, which the firm promises will “offer low-cost, risk-adjusted exposure to bond markets using a transparent, rules-based methodology.”
Michael Crinieri, GSAM’s global head of ETF strategy, commented: “This is a unique opportunity to revolutionize the fixed income ETF space, providing investors with exposure to bond markets while seeking to deliver smoother performance at a lower cost.”
GIGB tracks the Citi Goldman Sachs Investment Grade Corporate Index. Bonds in GIGB’s underlying index must have a minimum of $750 million outstanding and at least a rating of BBB- from Standard & Poor’s. Convertible bonds are excluded from the index’s selection universe.
The index seeks to avoid corporate bonds with high default probabilities or the potential for rapid price erosion. The bond universe is screened for big issues and large issuers representing the more liquid portion of the market, and then ranked within their respective industries based on fundamental indicators including operating margins and leverage ratios. Bonds from the lowest ranked 10% of issuers are excluded and the bonds from the remaining 90% of issuers are market capitalization weighted to form the final index composition.
“We are pleased to further our relationship with GSAM with the release of a bespoke index, meticulously designed to balance exposure and risks in a systematic way,” said Arom Pathammavong, global head of Citi Fixed Income Indices.
“Investors need a smarter choice evaluating the overall health of companies” added Jason Singer, portfolio manager for GIGB. “By screening for both liquidity and fundamental factors, the index seeks to limit exposure to illiquid, volatile and underperforming assets.”
The index has an effective duration of 7.3 years and provides exposure primarily to bonds from companies in the banking (30.2%), consumer noncyclical (15.6%), communications (15.0%), energy (11.3%) and technology (9.2%) sectors.
The fund has a total expense ratio (TER) of 0.14% and has been listed with $50 million in seed capital. It will be managed by GSAM’s global fixed income team who will aid in trade execution and portfolio construction optimization.
GIGB has been priced to undercut the $35 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE Arca: LQD) by one basis point, presenting investors with an alternate solution for their fixed income portfolio allocation.
This is the second fixed-income ETF in Goldman’s lineup. GSAM introduced the Goldman Sachs TreasuryAccess 0-1 Year ETF (NYSE Arca: GBIL) in September 2016. The ETF has recorded respectable demand since its launch, and now holds more than $85 million in assets under management.