Market Overview

Goldman Sachs Enters Ultra-Short Bond ETF Fray

Goldman Sachs Enters Ultra-Short Bond ETF Fray

Amid expectations the Federal Reserve will slow its pace of interest rate increases this year or perhaps not raise rates all, fixed income investors are embracing medium- and longer-term bond exchange traded funds.

What Happened

That's a departure from 2018, when investors flocked to short and ultra-short duration bond ETFs. Last year, three bond ETFs were among the top 10 asset-gathering ETFs in the U.S. Each of those three funds were short or ultra-short duration products.

While the Fed may be signaling it's okay for bond investors to take on more interest rate risk, some ETF issuers are rolling out shorter duration products. Goldman Sachs Group (NYSE: GS)'s Goldman Sachs Asset Management (GSAM) unit launched the Goldman Sachs Access Ultra Short Bond ETF (CBOE: GSST).

Why It's Important

The newly minted Goldman Sachs Access Ultra Short Bond ETF tracks the FTSE 3 Month T-Bill Index and can be used as an alternative to traditional money market funds while potentially generating higher returns.

Home to 25 highly-rated bonds, GSST is actively managed. Nearly 38 percent of GSST's holdings are U.S. Treasuries while 35.20 percent of the new ETF's holdings are investment-grade corporate bonds, according to issuer data. GSST also allocates 26.60 percent of its weight to mortgage-backed securities.

Obviously, Treasuries held by GSST carry AAA ratings. Another 10 percent of the new fund's holdings are rated AA while a combined 25.20 percent are rated A and BBB.

GSST's effective duration is 0.26 years with a weighted average maturity of 6.63 years.

What's Next

GSST is the fifth fixed income ETF in the GSAM lineup. The new fund charges just 0.16 percent per year, or $16 on a $10,000 investment, making its fees favorable relative to some other actively managed bond funds.

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