Speaking to ETF Stream in his first interview since GSAM entered the European ETF market in September, Thompson (pictured) revealed the asset manager would launch up to 10 ETFs by the end of Q1 across both equities and fixed income.
GSAM’s first ETF this side of the pond was a copy of a flagship US strategy, the Goldman Sachs ActiveBeta US Large Cap Equity UCITS ETF (GSLC).
He added the European range would look very much like the US suite, which launched in 2015 and currently has 19 ETFs with $14bn assets under management (AUM).
Like the US, the Source founder said the key area of focus for the European ETF business would be in the smart beta space which GSAM has a long in.
“Smart beta is the sweet spot for us. We have already delivered these strategies in various formats such as managed accounts and segregated mandates so that is where our expertise lies.”
Thompson, who joined GSAM in September 2018 to launch its European ETF business, added investors were simply not demanding another market-cap weighted ETF range.
Of particular focus for Thompson was in the fixed income space, an area he believes GSAM can become a market leader in Europe.
He argued a move away from market cap in the fixed income space makes more sense because it removes the issue of an index simply weighting itself to the most indebted companies.
Fixed income ETFs make-up less than 1% of the entire bond market and the industry thinking is it will be the fastest growing segment of the market.
Despite this however, innovation has been lacking with the majority of assets still flowing into market-cap weighted products.
“We see fixed income smart beta as a huge opportunity in Europe,” he continued. “Only a small proportion of assets go into fixed income ETFs but for us entering the market now, the bet is this sliver will get bigger and bigger.
“In the ETF market, if we do not have equity products then we will miss out on big assets, however, fixed income smart beta is an area that fits GSAM’s DNA.”
European ETF market
For Thompson, a key area of focus will be the retail and intermediary segments of the European market.
He argued ETFs are the perfect product for retail investors and private banks due to the access they provide to different asset classes.
“Retail and intermediaries are who we are targeting. When you look at Europe, the retail end is starting to speed up but in different places at different paces.”
However, he cautioned against treating the whole of Europe in the same way considering the high levels of fragmentation.
"We know that France and Germany are not like Minnesota and Wisconsin. Firms trying to succeed in Europe without knowing each individual market are likely to be disappointed."
“There are vastly different cultures and markets here and we have to take account of that. Therefore, we will be making some strategic bets in certain countries, but one bet an ETF issuer cannot make is on European retail because there is no such thing.”
Thompson revealed the firm would be targeting the German and Swiss markets, in particular, due to the opportunities there, in addition to the UK.
This, he said, was largely because those three countries had intermediaries such as private banks who were big adopters of ETFs.
Because the ETF team at GSAM is only made-up of three people, Thompson stressed one crucial advantage of being part of such a large asset manager was harnessing the relationships already developed across Europe.
One area of the ETF team Thompson does plan to expand is capital markets where GSAM does not have the same levels of expertise compared to other areas.
“There is a sales team of several hundred at GSAM. In the past, the sales team have not been able to talk about ETFs because they had no product to sell. Now, we have something in that category so they can have that discussion with our clients.
“From a client’s perspective, the thinking is what kind of vehicle do I need to deliver the type of returns my clients are asking me for.”
While Thompson admitted GSAM was late to the European ETF party, he is adamant there is still so much further to go.
“Europe is a long way off becoming a mature market especially considering it is still growing at double-digit percentage points a year.”