Goldman Sachs Asset Management has converted its defensive equity strategy into the Goldman Sachs Defensive Equity ETF (NYSE Arca: GDEF) in its first mutual fund to ETF conversion. The investment strategy and portfolio management of the ETF will be consistent with that of the mutual fund.
GDEF seeks long-term growth of capital with lower volatility than equity markets. Per its summary prospectus, it invests in a diversified portfolio of U.S. large-cap equity investments within the range of the market cap of the S&P 500 at the time of investment and other instruments with similar economic exposures. When selecting investments, GDEF uses quantitative techniques in conjunction with a qualitative overlay.
The ETF employs a “put spread collar” overlay strategy by buying a put option on the S&P 500 at a higher strike price and writing (or selling) a put option on the same index at a relatively lower strike price. This results in a “put option spread,” while simultaneously selling an S&P 500 call option. The difference between strike prices in the put option spread is designed to provide the fund with downside protection.
In addition to using the put spread collar strategy, GDEF may also use future contracts, primarily futures on indexes, options on futures, and total return swaps to gain targeted equity exposure more effectively from its cash positions and to hedge its portfolio if it can’t buy or sell the necessary options for its overlay strategy.
“Advisors have been turning to lower risk equity ETFs in 2022 amid the elevated market volatility and concerns about the uncertain macroeconomic outlook,” said Todd Rosenbluth, head of research at VettaFi. “It is great to see Goldman bring its expertise in defensive equities to the ETF market.”
GDEF has an expense ratio of 0.55%.