Goldman Sachs' hot new fund is off to a flying start

One of Goldman Sachs’ new exchange-traded funds — which launched just over a week ago — has received a $US150 million investment from a single firm, according to people familiar with the matter.

The US bank made its first foray in to the world of exchange traded funds last month, launching the ActiveBeta US Large Cap Equity ETF, or GSLC, on September 21 with $US50 million in assets.

It then launched the ActiveBeta Emerging Markets Equity ETF, or GEM, on September 29 with $US20 million.

The emerging markets fund has in the past few days jumped to $US178 million in assets, according to Goldman Sachs’ website, a gain attributed to that sole institutional investor. The identity of the investor isn’t clear.

The US large-cap fund is now the smaller of the two, with just $US64 million in assets under management, according to the Goldman Sachs’ website.

Smart beta

Both funds are based on Goldman Sachs’ ActiveBeta index — the bank’s version of ‘smart beta’, which refers to an alternative form of index investing where the index is based on factors other than capitalisation-weightings.

ETFs typically track capitalisation-weighted benchmarks such as the Standard & Poor’s 500 Index. These capitalisation-based benchmarks have received some criticism in the investing world as they are moved by the biggest, and potentially most overvalued, stocks, and have less exposure to smaller companies which might be undervalued.

Goldman Sachs’ ActiveBeta weights stocks based on four attributes: quality, momentum, volatility and value.

Tim O’Neill, Goldman Sachs’ partner and global cohead of the investment management division, recently weighed in on the debate over active and passive management, saying both are required for a market to function.

“A market needs both active and passive investing because if everybody’s a passive investor, there’s no one to buy from,” O’Neill said on a new “Exchanges at Goldman Sachs” podcast. “And if passive becomes a certain oversized percentage of the market, the market doesn’t function.”

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