Goldman Sachs targets emerging markets with second smart beta ETF

Oct 8th, 2015 | By | Category: Equities

Goldman Sachs Asset Management (GSAM), the asset management arm of US investment bank Goldman Sachs, has expanded their smart beta “ActiveBeta” exchange-traded fund range with the launch of an emerging markets ETF.

GSAM targets EM with second smart beta ETF

The second ActiveBeta ETF from Goldman Sachs provides investors with a smart beta approach to emerging markets.

The Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM) follows a multi-factor strategy which is designed to outperform market capitalisation-weighted indices. The fund is based on a similar methodology to their ActiveBeta US Large Cap ETF (GSLC) launched earlier this month, with both funds tilting the portfolio towards holdings with value, momentum, quality and low volatility characteristics.

“We see growth opportunities across various sectors in emerging markets, and the Goldman Sachs ActiveBeta Emerging Markets Equity ETF is designed to capture returns from these pockets of growth,” said Michael Crinieri, GSAM’s Global Head of ETF Strategies. “As investors continue to look for new ways to increase their exposure to international equities, we are pleased to bring to market a product that provides them that access and diversification in their portfolios at a reasonable cost.”

The fund aims to track the Goldman Sachs ActiveBeta Emerging Markets Equity Index which weights stocks in the MSCI Emerging Markets Index based on four well-established drivers of performance: value, momentum, quality and low volatility.

“We believe the launch and continued evolution of our ActiveBeta ETF suite is indicative of what we believe is part of the next generation of investing,” said Gary Chropuvka, Head of ActiveBeta Equity Strategies within the Quantitative Investment Strategies team. “GEM is a result of our commitment to serving all investors – leveraging our quantitative investment expertise, applying it to our deep knowledge of global markets and delivering the strategy in a sophisticated yet simple structure.”

The index is created from the constituents of its reference index, the MSCI Emerging Markets Index. The process first defines four sub-indices, one for each factor, by assigning each constituent a “factor score” based on its characteristics and including only those above a set cut-off score. These factors include value (how attractively a stock is priced relative to its “fundamentals,” such as book value and free cash flow), momentum (whether a company’s share price is trending up or down), quality (companies which appear to offer sustainable profitability) and low volatility (a relatively low degree of fluctuation in a company’s share price over time). Once these sub-indices are formed, the final index is created as an equally weighted allocation to each sub-index.

Listed on the NYSE Arca, the fund carries a competitive 0.45% net expense ratio which is guaranteed through at least 14 September 14 2016. The gross expense ratio, which excludes temporary fee reductions, is 0.76%. GSAM plans to launch additional ActiveBeta ETFs in the coming months.

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