Goldman Sachs Group Inc (NYSE:GS) is getting ready to enter the active ETF market, filing with the Securities and Exchange Commission for permission to launch an equity dividend ETF on Friday, reports Ashley Lau for Reuters. Goldman also asked the SEC for permission to self-index, which would allow them to sell ETFs pegged to their own in-house indexes. A Goldman Sachs spokesperson has confirmed that the investment bank is launching active ETFs with global head of ETF strategy Michael Crinieri at the helm.
Goldman Sachs follows other investment banks into the ETF fray
Goldman Sachs Group Inc’s (NYSE:GS) decision follows JPMorgan Chase & Co. (NYSE:JPM), which launched its first ETF in June, and Wells Fargo & Co (NYSE:WFC), which applied for regulatory permission last month. In the past investment banks would have worried about shifting clients from more expensive asset management to lower cost ETFs (Goldman Sachs applied for permission to launch passive ETFs five years ago but never followed up on it), but the rise of passive ETFs has changed that calculation. Now most banks’ clients are aware of the cheaper options and if there are no cheaper alternatives available Goldman Sachs could simply lose that business entirely.
Tiger Legatus Master Fund was up 0.1% net for the second quarter, compared to the MSCI World Index's 7.9% return and the S&P 500's 8.5% gain. For the first half of the year, Tiger Legatus is up 9%, while the MSCI World Index has gained 13.3%, and the S&P has returned 15.3%. Q2 2021 hedge Read More
But even in the world of lower transaction fees, competing solely on cost still can’t a very attractive proposition for Goldman Sachs Group Inc’s (NYSE:GS) and other investment banks, which explains the in-house indexing that will give it a chance of branding its ETFs and possibly charging a premium compared to Vanguard and other popular ETF providers.
Active ETFs take a view on the market
One of the features that makes passive ETFs popular among buy-and-hold investors is that it’s a cheap way to own the market, but active ETFs are a fairly different animal despite the name. Much like smart beta, active ETFs take a view on the market. Whether you’re interested in momentum stocks, cheap stocks, or stocks that pay steady dividends (or whatever criteria Goldman Sachs Group Inc’s (NYSE:GS) ends up using for their new fund), someone has to be on the other side of the trade.
Even though investment banks are a bit late to the party, if their first products succeed you can expect the same explosion in variety and complications that we’ve seen in other asset classes once ambitious sell-siders decide that it’s the best way to win customers back.