Product Panel: Goldman Sachs ActiveBeta US Large Cap Equity ETF

Arguably the biggest launch for some time in the European ETF space comes from Goldman Sachs.

The long-awaited move will see the asset management giant enter the market with the ActiveBeta US Large Cap Equity UCITS ETF (GSLC), the European version of its flagship fund in the US which has over $6.5bn in assets under management (AUM).

GSLC is listed on the London Stock Exchange with a management fee of 0.14%, 5 basis points higher than its American counterpart.

Designed inhouse, it tracks the Goldman Sachs ActiveBeta US Large Cap Equity index. GSAM says it will list GSLC on several other exchanges in Europe in the near future. The firm has assigned BNY Mellon to deliver a range of asset services for the newly listed and upcoming ETFs.

What the company says:

Nick Phillips, head of the international retail client business at GSAM, said: “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.”

What the panel says:

Nicolas Rabener, FactorResearch

Goldman Sachs’ entry into the European ETF market follows the playbook established in the US, where GS launched GSLC in 2015, which became the world’s largest multi-factor ETF with $6.9bn AUM.

The launch of the European ETF is somewhat late and follows JP Morgan, which launched global and US multi-factor ETFs for European investors in June. JP is charging 19 bps, so GS is undercutting JP with 14 bps.

Somewhat unusually, GS is also partially cannibalising its own ETF, the Invesco Goldman Sachs Equity Factor Index World UCITS ETF, which is Europe’s largest multi-factor ETF with £526m AUM and is priced much more expensively at 55 bps. The ETF price war continues.

Sam Dickens, IG Portfolios

Additional competition in the European ETF market is good news for both institutional and retail investors. In this case, GSAM’s entry is more likely to result in increased product choice rather than drive fees lower. Looking at their existing product set in the US, GSAM appears to have focused their efforts on smart beta and thematic ETFs.

On our platform, we see limited interest amongst retail clients for smart-beta strategies, but thematic ETFs are gaining traction as investors appear to resonate more strongly with the story and mechanics behind these type of products.

This is an area where Goldman Sachs have a number of interesting US-listed ETFs, such as Goldman Sachs Motif Data-Driven World ETF (GDAT), and if replicated on European exchanges could form a small part of an investor’s portfolio when using a core-satellite approach to portfolio construction.

However, GSAM have managed to gain around 0.5% share of the US ETF market since launching their first ETF in 2015, proving it has been extremely difficult to win assets off the likes of iShares, Vanguard and SPDR – all of whom have very competitively priced core ETFs as well as offering more niche products. I expect GSAM will find it equally as challenging to break into the top three in Europe.

Timo Pfeiffer, Solactive

The growing demand for passive investments brings more players to the market, hoping to nurture from this trend. The more players are in the market – going back to the first semester in Economics – the more efficient the market becomes.

Higher competition drives down costs while on the other side of the spectrum, the tug-of-war between ETF providers will account for better service quality (since the price is not a criterion any longer) and in a higher degree of market efficiency and price transparency.

This academic dogma is no different with Goldman Sachs entering the striving European ETF space. Furthermore, we’ve witnessed a massive slash in fees for plain benchmark ETFs with Amundi being in the driving seat of this trend in Europe.

Goldman Sachs’ market entry will bring further advancements in the area of fee competitiveness or at least a consolidation of the low-fee trend in the global and European ETF space coupled with an additional degree of innovation as they have demonstrated with some of their offering over in the US.

Kenneth Lamont, Morningstar

Goldman Sachs has spearheaded the launch of their European ETF range with the introduction of the ActiveBeta US Large Cap Equity ETF. Launched in September 2015, an ETF tracking the same strategy in the US has grown to become the largest multi-factor smart beta ETF in the world by a considerable margin.

The ETF offers broad exposure to US large-cap stocks, but tilts toward those with characteristics that have historically been associated with market-beating performance. These include low valuations, strong momentum, high profitability, and low volatility. This approach diversifies risk because each factor tends to work well at a different time.

The fund’s factor tilts are comparatively modest and the portfolio looks a lot like the S&P 500. The simple equal-weighted factor approach employed is transparent, though a more integrated approach would likely lead to stronger style tilts and slightly higher returns.

It will lock horns with a host of multi-factor rivals in Europe, notably the popular UBS ETF MSCI USA Select Factor Mix ETF. With an annual management fee of 0.14%, the Goldman Sachs offering becomes the cheapest multi-factor offering in Europe.

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