Assessing An All-Star Goldman Sachs ETF

By industry standards, Goldman Sachs Group Inc. GS was late to the exchange traded funds party. ETFs bearing the Goldman name did not come to market until the third quarter of 2015, but the company is proving to be a formidable issuer. As of Feb. 22, Goldman had $6.96 billion in ETF assets under management.

A significant percentage of Goldman's ETF assets reside in the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF GSLC. GSLC, which follows the Goldman Sachs ActiveBeta U.S. Large Cap Equity Index. It can be used as an alternative to traditional cap-weighted index funds, such as those tracking the S&P 500. The fund is home to $2.84 billion in assets, according to issuer data.

GSLC is a multifactor fund that focuses on the following four investment factors: good value, strong momentum, high quality and low volatility.

The Weighting Scheme

Over the past 24 months, GSLC has trailed the S&P 500 by 340 basis points, but the Goldman ETF has been less volatile than the U.S. equity benchmark. The ETF's weighting methodology could lend itself to some underperformance at various times and the potential for outperformance in other market environments.

“The portfolio is divided into four equally weighted sleeves that each tilt toward stocks with a different characteristic of interest. This simple approach is transparent, though a more integrated approach would probably be a bit more efficient,” said Morningstar. “Each sleeve gives over- or underweightings to stocks from the large-cap selection universe based on the degree to which they exhibit the targeted style characteristic.”

GSLC is overweight technology stocks relative to the S&P 500, and the ETF's second-largest sector weight is health care, which is in third place in the S&P 500. Financials, the second-largest sector weight in the S&P 500, are GSLC's fourth-largest sector exposure.

It's Cheap

One of the reasons GSLC has established a following with investors: its low fee. 

“The cost of our ActiveBeta US Large Cap ETF is 9 basis points, compared to the industry average for smart beta ETFs of 35 basis points,” according to the issuer.

Morningstar has a Bronze rating on GSLC.

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