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Summary Goldman Sachs recently announced their entry into the ETF marketplace with 6 ActiveBeta ETFs. One in particular caught my eye. Investors have historically faced the choice of going with completely passive (i.e. index) ETFs to obtain low costs, or active ETFs with much higher costs. In this article, I dive into an offering that may bridge the gap. As announced earlier today on Seeking Alpha as well as several other news sources, Goldman Sachs’ (NYSE: GS ) first foray into the ETF marketplace is open for business. The ActiveBeta U.S. Large Cap Equity ETF (NYSEARCA: GSLC ) is the first of six ETFs Goldman will be launching. Of the group, this is also the one in particular that caught my eye. Why? For this simple reason. Goldman previously announced that this ETF will be sporting an incredibly low .09% expense ratio. That’s right. An ETF which certainly contains components of active management in the sense of using factor investing tools and techniques in an attempt to provide market-beating returns, while doing so at an expense ratio that is competitive with the very lowest cost index ETFs. My curiosity was sufficiently piqued to spend a little time digging into this ETF, in an attempt to understand what an investor who decides to invest would be getting. Composition and Analysis It didn’t take too much digging to find the prospectus . Here are some tidbits you may find interesting. First of all, the fund tracks a proprietary index known as the Goldman Sachs ActiveBeta® U.S. Large Cap Equity Index. With a little more digging, I was able to find supporting documentation with respect to this index. Here is the index itself and here is the methodology used in its construction. One can quickly see that the index tracks a large number of securities, 455 to be precise. Once the base securities are selected, a proprietary “factor score” is assigned to each, based on the following factors: Value – A composite of various valuation measures. Momentum – Beta and volatility-adjusted total returns. Quality – Various measures of profitability divided by assets. Low Volatility – The inverse of standard deviation Based on this analysis, each security will be assigned some weight in the final index, ranging from overweight down to as low as zero (the prospectus clarifies that the fund will not short securities, so zero is the lowest possible weighting). In addition to this, the fund attempts to reduce the costs and tax implications associated with excessive turnover by employing proprietary tools to attempt to identify offsetting pair trades, as well as allowing each security to “float” a defined distance away from its prescribed target weight. I interpret that as a mathematical formula which identifies that the cost of trading exceeds the risk from the slight imbalance. The index is rebalanced quarterly; in February, May, August and November. Finally, using the index reference linked above, I was able to determine the top holdings as of the latest rebalancing. To help you dig just a little deeper, I hereby present, not just the Top 10, but the Top 20 holdings: As can be seen, these cross a wide variety of sectors; including technology, health care, financial, energy, and telecommunications. Summary and Conclusion I am impressed with Goldman Sachs’ offering. About the closest thing in my portfolio that I can compare it to is the Vanguard Dividend Appreciation ETF (NYSEARCA: VIG ), which I have written about previously right here on Seeking Alpha. Some high-level similarities include the fact that both use a proprietary index to screen for desired criteria, rebalance the indexes on a regular basis to eliminate securities that no longer meet the criteria, and sport rock-bottom expense ratios (.10% in the case of VIG). I haven’t made any final decisions yet. I tend to move slowly and carefully. However, I would not at all be surprised if the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF ends up occupying a place in my portfolio. Disclosure: I am/we are long VIG. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: I am not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult with their personal tax or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal. Scalper1 News
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