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Goldman Forays into ETF Market; Initiates "ActiveBeta" ETF

Goldman Sachs Asset Management (GSAM), the asset management arm of The Goldman Sachs Group, Inc.GS jumped on the bandwagon of Wall Street banks, which are targeting the fastest growing market of actively managed exchange-traded funds (ETFs) and launched its first ETF. Goldman entered the world of ETFs with the launch of the ActiveBeta US Large Cap Equity ETF (GSLC), on Monday.

"We are excited to enter the ETF market," said Tim O'Neill, Global Co-Head of the Investment Management Division, which includes GSAM. "Our approach to ETFs continues our legacy of investment innovation and at a cost that makes them accessible to all investors."

Notably, in December 2014, Goldman filed for a number of new alternative exchange-traded funds with the U.S. Securities and Exchange Commission (SEC) and sought permission for 11 ETFs.

Goldman planned for six funds named "ActiveBeta" and five hedge fund-themed funds. Notably, all these funds are passively managed. Further, these new funds comprise of international, emerging markets, Europe and Japan equity, along with U.S. large-cap and small-cap stocks. Hedge fund-themed ETFs work on equity long-short strategies and are expected to yield returns like hedge funds using those strategies.

Therefore, the newly launched fund with $50 million in institutional assets is the first in the series of "ActiveBeta" funds to be launched by Goldman in the upcoming months. The fund is priced at a competitive cost of 9 basis points to investors.

Moreover, the fund with its focus on U.S. companies works with a defined strategy and an added advantage of Goldman Sachs ActiveBeta index, the methodology of Goldman, which weights stocks with attributes such as good value, strong momentum, low volatility and high quality.

"Our clients asked us to apply our investment expertise to exchange-traded funds," said Michael Crinieri, GSAM's Global Head of ETF Strategies. "We believe ActiveBeta ETFs create solutions for them and capitalize on our global reach and deep knowledge of the markets."

Similar Moves by Other Wall Street Giants

In June 2014, JPMorgan Chase & Co. JPM initiated its first ETF and is in the process of introducing more funds to the market. Further, in August, another Wall Street bank -Wells Fargo & Company WFC received regulatory approval to offer ETFs.

Amid the ongoing trend in the finance industry under which investors are increasingly becoming inclined towards passively managed products like index funds and ETFs compared with traditional mutual funds, foraying into such a market will be the driving factor for banks. Notably, the ETF market worth $3 trillion has become attractive over the past few years.

Conclusion

Given the competitive environment and stringent regulatory landscape, banks are facing tough challenges in controlling costs and increasing revenue. This is certainly restricting their bottom-line growth. To make matters worse, a number of major banks have been encountering legal overhangs in recent times.

Further, due to a prolonged low interest rate environment, several banks are witnessing a continuous decline in net interest income and pressure on net interest margin. Thus, a significant turnaround seems elusive in the near term. Moreover, absence of credible improvement in the mortgage market is another headwind.

Therefore, given the underlying strength in the ETF market, it will be a prudent decision for banks to expand in this area. Currently, Goldman carries a Zacks Rank #3 (Hold). A better-ranked finance stock worth considering includes Piper Jaffray Companies PJC with a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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