GSAM introduces defensive US equity ETF

Jan 25th, 2023 | By | Category: Equities

Goldman Sachs Asset Management has unveiled an actively managed ETF providing risk-managed exposure to US large-cap equities.

GSAM introduces defensive US equity ETF

GSAM has completed its first mutual fund to ETF conversion.

The Goldman Sachs Defensive Equity ETF (GDEF US) has been listed on NYSE Arca with an expense ratio of 0.55%.

The ETF has been created by converting a $5 million mutual fund that has been pursuing the same underlying strategy since September 2020.

This marks the first mutual fund to ETF remodeling for GSAM as the Wall Street titan joins the likes of Franklin Templeton, JP Morgan, Dimensional Fund Advisors, and Neuberger Berman who have already completed their own conversions.

Investment approach

GSAM utilizes its proprietary quantitative and qualitative analysis to select stocks from within the S&P 500, building a diversified portfolio that is designed to offer resiliency during many different market conditions.

As of 20 January, the ETF contained 240 holdings with Apple (5.6%), Alphabet (3.0%), and Berkshire Hathaway (1.6%) representing the top exposures. The fund’s sector allocation was led by information technology (18.9%), health care (17.7%), industrials (10.2%), and consumer staples (9.0%).

GSAM then also utilizes an options strategy overlay to further enhance the ETF’s risk management, employing a ‘put spread’ that involves purchasing a near-the-money put option while simultaneously selling a further out-the-money put option on the S&P 500.

The put spread delivers a degree of downside protection if US equity markets are falling. The options strategy is generally profitable if the S&P 500 falls below the strike price of the long put option but gains are capped once the S&P 500 moves below the strike price of the short put option.

To help fund the net cost of the put spread, the ETF will also sell an out-the-money call option on the S&P 500; however, the main disadvantage of this approach is that profits from the ETF’s equity portfolio in rising US equity markets will be reduced if the S&P 500 rises above the strike price of the short call option.

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