Smart-Beta ETFs Employ Active Strategies

For instance, Goldman Sachs recently launched a group of “ActiveBeta” ETFs that track multi-factor indices, including the Goldman Sachs ActiveBeta International Equity ETF (NYSEarca: GSIE), Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (NYSEarca: GSLC) and Goldman Sachs ActiveBeta Emerging Markets Equity ETF (NYSEarca: GEM).

Andrew Alford, Managing Director of Quantitative Investment Strategies at Goldman Sachs Asset Management, explains that the  ActiveBeta indexing methodology tracks exposure to common investment factors like value, momentum, quality and low volatility in an attempt to outperform broader benchmarks with potentially smaller drawdowns.

The value factor targets companies with attractive book value-to-price, sales-to-price and free cash flow-to-price that may represent an undervalued company relative to the rest of the market. Momentum refers to stocks with prices that have been growing taken from the past 11-month period. Quality selects components based on sustainable profitability to provide exposure to companies with strong fundamentals and potential for consistent returns. The low volatility metric identifies companies that are likely to avoid extreme swings and help smooth out the ride.

Mark Eicker, Chief Investment Officer and Portfolio Manager at Sterling Global Strategies, also pointed out that implementing an active approach to market conditions has helped avoid bearish market conditions and diminish losses during market downturns.

The smart-beta ETFs employ actively managed investment styles in a passive index-based ETF wrapper to potentially generate improved risk-adjusted returns.

Steve Sachs, Head of Capital Markets at Goldman Sachs Asset Management, also revealed the Goldman Sachs will be coming out with the Goldman Sachs ActiveBeta Europe Equity ETF (GSEU) and Goldman Sachs ActiveBeta Japan Equity ETF (GSJY) over the next two days, along with the Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF (GSSC) later on.

Goldman Sachs has been crafting the ActiveBeta ETFs in response to increased demand from clients for Goldman investment strategies in an ETF wrapper, especially among its institutional and insurance-based clients.

Financial advisors who are interested in learning more about Goldman Sachs’ market outlook can listen to the webcast here on demand.