Disruption, Defined: Goldman Sachs on What's Next

Exchange traded fund investors to enhance a traditional portfolio mix should consider the opportunities in high-conviction, disruptive investments.

In the recent webcast, Disruptive Innovation: Key Themes Driving Equity Markets, Cole Feinberg, ETF Specialist, Goldman Sachs Asset Management; and Marissa Ansell, Lead Client Portfolio Manager For Thematic Investing, Goldman Sachs Asset Management, argued that investors have broad exposure to the markets but they are not positioned for a quickly changing environment that is being spearheaded by market disruptors.

“The pace and scale of disruptions are accelerating,” according to the strategists. “We believe investors need to be on the right side of disruption and position their portfolios for the future.”

While many have relied on traditional benchmark exposures like the S&P 500, these market capitalization-weighted indexes are too top heavy or over-concentrated and over-exposed to companies at risk of disruptions. Specifically, the S&P 500’s top five companies make up 21% of the overall portfolio, and Goldman Sachs has found that 31% of the portfolio is at risk of being disrupted or is vulnerable to future disruption. In comparison, only 21% of the S&P 500 has displayed or is developing disruptive characteristics. Since the 2015, disruptors have outperformed the disrupted by 279%.

Looking ahead, as tech innovation disrupts companies across even more sectors and geographies, the strategists pointed to rising themes like e-commerce, electric vehicles, precision medicine, fintech, clean energy, smart components, sustainable consumption, artificial intelligence, genomics, public cloud, online entertainment, and robotics.

Highlighting the climate change dilemma, greenhouse gas emissions need to be halved by 2030 to be in line with the Paris Agreement. Meanwhile, governments, corporations, and consumers are aligned in driving a global sustainability revolution.

“Investing in companies seeking to provide solutions to environmental issues aligns client portfolios to secular growth themes, potentially generating strong impact & investment returns,” according to the strategists.

Consequently, Goldman Sachs has identified five key themes, including clean energy, resource efficiency, sustainable consumption, a circular economy, and water sustainability, where innovation in these areas is creating environmental solutions and investment opportunities.

To access this green opportunity, the recently launched Goldman Sachs Future Planet Equity ETF (GSFP) can help investors position their portfolios on the right side of disruption by providing focused exposure to long-term secular growth trends.

The Goldman Sachs Future Planet Equity ETF is a transparent, actively managed equity ETF. The fund provides investors the benefits of fully transparent active management and will be managed by experienced fundamental investors with a disciplined valuation framework. Goldman Sachs also intends to invest in the fund alongside its clients.

The ETF intends to invest in companies that seek to provide solutions to environmental problems aligned with five key themes: clean energy, resource efficiency, sustainable consumption, the circular economy, and water sustainability. GSFP will conduct active, bottom-up security selection to target companies with the potential to drive more sustainable practices and deliver strong returns across various sectors, geographies, and market capitalizations.

Additionally, the reorganized Goldman Sachs Innovate Equity ETF (GINN) offers exposure to five themes represented by a Data-Driven World, Finance Reimagined, Human Evolution, a Manufacturing Revolution, and the New Age Consumer. The five themes have been combined on an equal-weighted basis in GINN.

GINN seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the Solactive Innovative Global Equity Index. The index is owned and calculated by Solactive AG. The index combines the five themes on an equal-weighted basis to provide exposure to companies that may benefit from technological innovation and the resulting changes in the economy.

Financial advisors who are interested in learning more about disruptive innovations can watch the webcast here on demand.