The Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (NYSEarca: GSLC) was one of the first exchange traded funds introduced by Goldman Sachs. GSLC, which turns three in September, has been a hit with investors in less than three years of trading as highlighted by $2.84 billion in assets under management.
As a multi-factor ETF, part of GSLC’s objective is to provide investors with a broad basket of equities with the potential to top traditional benchmarks, such as the S&P 500, while removing the need to time individual investment factors.
GSLC factors include value or how attractively a stock is price relative to fundamentals like book value and free cash flow; momentum or the current up or down trend in a company stock; quality or profitability; and low volatility or the degree of fluctuation in a company’s share price over time.
“The portfolio is divided into four equally weighted sleeves that each tilt toward stocks with a different characteristic of interest,” said Morningstar. “This simple approach is transparent, though a more integrated approach would probably be a bit more efficient. Each sleeve gives over- or underweightings to stocks from the large-cap selection universe based on the degree to which they exhibit the targeted style characteristic.”
GSLC holds 440 stocks. Apple Inc. (NASDAQ:AAPL) is the ETF’s largest holding at a weight of 3.1%. Technology is GSLC’s largest sector weight at 25.5% followed by healthcare at 14.5%. The consumer discretionary and financial services sectors combine for almost 27% of GSLC’s roster.
Cap-weighted indices may also expose investors to other fundamental risks as the weighting methodology would attach more weight toward indebted countries or companies Multi-factor benchmarks attempt to avoid such problems. Frequently used factors in multi-factor indexes include, value, growth, quality and low volatility.
“Stocks with low valuations, strong recent performance (momentum), strong profits, and low volatility have historically offered strong performance in most markets studied over the long term. There are reasonable economic explanations behind each effect, ranging from compensation for risk to behavioral mispricing, suggesting they will continue to work over the long run,” according to Morningstar.
GSLC is also one of the least expensive smart beta ETFs investors can find.
“For example, the cost of our ActiveBeta US Large Cap ETF is 9 basis points, compared to the industry average for smart beta ETFs of 35 basis points,” according to Goldman Sachs Asset Management.
For more information on multi-factor strategies, visit our smart beta category.