Goldman Continues ETF Market Push With Proposal To Launch 11 New ETFs

In what comes as the latest move by Goldman Sachs (NYSE:GS) to grab a larger share of the rapidly-growing exchange-traded fund (ETF) industry, the investment banking giant is looking to launch as many as 11 new ETFs in the near future. ^[1] Goldman filed a request with the SEC last Friday (December 12) to list six ETFs that will rely on smart-beta investment strategies under the new ActiveBeta brand name, and another five ETFs that are hedge fund-themed. ^[2] While the bank intends to list these ETFs on the NYSE Arca exchange, it has not revealed tickers or expense ratios for any of them.

Goldman has been looking for ways to grow its asset management business since the economic downturn of 2008, as it faces increasing pressure from regulators as well as investors to increase the share of less volatile revenue streams in its trading-focused business model. The increasing popularity of ETFs over recent years made the industry a top priority for Goldman, with the bank first revealing its intent in September by seeking the SEC’s approval for a series of active ETFs (see Goldman Details Plans To Foray Into Active ETF Market). Goldman was also involved in talks to acquire the New York-based ETF provider IndexIQ in October. ^[3] Notably, Goldman’s decision to launch these 11 new ETFs comes shortly after IndexIQ’s acquisition by New York Life Insurance. ^[4]

We maintain a $188 price estimate for Goldman’s stock, which is slightly above the current market price.

See the full Trefis analysis for Goldman Sachs

ETFs have been the fastest-growing investment vehicle for institutional as well as retail investors in recent years – turning from an obscure product at the turn of the century to a $2 trillion global industry now. Not willing to be left behind, several U.S. banking giants have bet on the ETF industry of late. While JPMorgan (NYSE:JPM) is the only major bank to have already made an ETF available to investors (launched in June 2014), Wells Fargo (NYSE:WFC) joined Goldman to request permission from the SEC to foray into the industry with active ETFs earlier this year. Eager to make an entry into the industry at the earliest, Goldman was also keen on acquiring IndexIQ – a move that would have allowed the bank to offer ETFs by the end of the year.

But things did not go as planned for Goldman, as the SEC’s decision to turn down requests for active ETFs by BlackRock (NYSE:BLK) and Precidian made it extremely unlikely for the bank’s similar ETF offering to get regulatory clearance. Also, IndexIQ was eventually bought by New York Life Insurance, forcing Goldman to go ahead with its own set of ETF launches. The 11 ETFs Goldman is now looking to offer investors early next year are: ^[2]

• Goldman Sachs ActiveBeta International Equity ETF
• Goldman Sachs ActiveBeta Emerging Markets Equity ETF
• Goldman Sachs ActiveBeta Europe Equity ETF
• Goldman Sachs ActiveBeta Japan Equity ETF
• Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF
• Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF
• Goldman Sachs Equity Long Short Hedge Fund Tracker ETF
• Goldman Sachs Event Driven Hedge Fund Tracker ETF
• Goldman Sachs Macro Hedge Fund Tracker ETF
• Goldman Sachs Multi-Strategy Hedge Fund Tracker ETF
• Goldman Sachs Relative Value Hedge Fund Tracker ETF

As can be seen from the chart above, Goldman Sachs’ asset management business contributes a notable 11% of the investment bank’s total value. The unit is an important part of the bank’s overall business model, as it offers a stable source of revenue as opposed to its trading units which are highly volatile. The string of ETFs that Goldman seeks to launch in the near future will help boost its asset base steadily over coming years. The bank reported $1.15 trillion in assets under management at the end of Q3 2014, and you can understand how changes in the size of these assets affects its share price by making changes to the chart below.

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1. Goldman files for a new batch of exchange-traded funds, Reuters, Dec 15 2014 [↩]
2. N-1A Filing, SEC Website, Dec 12 2014 [↩] [↩]
3. Goldman Sachs in talks to acquire ETF provider IndexIQ, Reuters, Oct 16 2014 [↩]
4. New York Life Bets on ETFs Copying Hedge Funds, Bloomberg, Dec 4 2014 [↩]