Goldman Sachs Asset Management (GSAM) has introduced its third European-domiciled ETF with the launch of the Goldman Sachs ActiveBeta Emerging Markets Equity UCITS ETF on London Stock Exchange (GSEM LN) and Xetra (GACB GR).
Peter Thompson, Head of GSAM’s European ETF Business.
The fund tracks the proprietary Goldman Sachs ActiveBeta Emerging Markets Equity Index which also underlies the $1.8 billion Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM US) listed on NYSE Arca.
The index is part of GSAM’s ‘ActiveBeta’ index suite which systematically exploits four well-established equity factors – value, momentum, quality and low volatility – in a bid to provide higher returns at similar or lower levels of risk relative to traditional market-cap weighted benchmarks.
The index is built from a universe of constituents that corresponds to the MSCI Emerging Markets Index which captures large and mid-cap representation across 26 emerging market countries.
The construction process involves two steps. In the first step, four sub-indices are determined, one for each factor, by assigning eligible constituents a score for each of the four factors based on financial and technical attributes. Constituents are over- or under-weighted in these four single-factor sub-indices according to factor rank.
In the second step, the four sub-indices are equally weighted with offsetting positions calculated and netted off to determine the final index weights, subject to various weight constraints to control country, region, and industry group biases. Additionally, constituents with final weights below 0.10% are eliminated from the index.
The index is rebalanced quarterly but existing constituents are allowed to deviate either side of their target weights within a range to reduce portfolio turnover.
The result of this process is an index that should exhibit superior value, momentum, and quality characteristics and with lower volatility versus the parent MSCI Emerging Markets Index over the course of an investment cycle.
The index has broadly similar exposures to its parent universe. The largest country exposures are China (28.5% vs. 31.9% in MSCI EM), South Korea (13.5% vs. 12.2%), Taiwan (12.7% vs. 11.5%), India (8.9% vs. 8.9%), and Brazil (8.9% vs. 7.6%). Stocks from the financials sector account for a quarter (24.9% vs. 24.7%) of the index weight, followed by information technology (14.8% vs. 15.5%), consumer discretionary (12.4% vs. 13.3%), and consumer staples (12.3% vs. 6.7%).
The ETF comes with an expense ratio of 0.49%.
Peter Thompson, Head of GSAM’s European ETF Business, commented, “The Goldman Sachs ActiveBeta Emerging Markets Equity UCITS ETF is designed to help investors access opportunities across emerging markets in a smart, efficient way. The latest addition to our European ETF business provides investors with a sophisticated route to diversification, which leverages our quantitative investment expertise, and deep knowledge of emerging markets in a simple structure.”
Nick Phillips, Head of International Retail Client Business at GSAM, added, “By adding emerging markets access to our expanding European smart beta ETF range, we hope to provide a smart yet sophisticated solution to clients’ diversification needs. Over the coming months we will continue to draw on GSAM’s expertise and experience to broaden global clients’ access across asset classes and investment styles, in our bid to deliver superior risk-adjusted returns.”
The fund is the second ActiveBeta ETF to be introduced by GSAM in Europe following the launch of the Goldman Sachs ActiveBeta US Large Cap Equity UCITS ETF (GSLC LN / GACA GR) in September. This ETF focuses on the US large-cap equity universe and comes with an expense ratio of 0.14%.
GSAM offers six ActiveBeta ETFs in the US, highlighting the potential for the firm to further develop the suite in Europe. The four other funds target international developed, European, Japanese, and US small-cap stocks.