The Goldman Sachs Group, Inc. (GS) which jumped on the bandwagon of Wall Street banks which are targeting the fastest growing market of actively managed exchange-traded funds (ETFs) in September, has filed for a number of new alternative exchange-traded funds. Last week, Goldman in a filing with the U.S. Securities and Exchange Commission (SEC) sought permission for 11 ETFs.
According to the filing, Goldman has planned for six funds named "ActiveBeta" and five hedge fund-themed funds. Notably, all these funds are passively managed. Further, these new funds comprise of international, emerging markets, Europe and Japan equity, along with U.S. large-cap and small-cap stocks.
According to the filing, hedge fund-themed ETFs work on equity long-short strategies and are expected to yield returns like hedge funds using those strategies. However, details of the "ActiveBeta" ETFs were not disclosed by Goldman in the filing.
Goldman Sachs Asset Management LP will work as the index provider. As per the filing, these ETFs will be listed on the NYSE Arca exchange, the trading platform where mostly ETFs are traded.
Previously, in September, Goldman sought the SEC’s approval to foray into the ETF market with a series of active ETFs. A separate filing was also filed by Goldman seeking regulatory approval for self-index, allowing the Wall Street bank to introduce funds based on its created in-house proprietary indexes.
Similar Moves by Other Wall Street Giants
In June, JPMorgan Chase & Co. (JPM) initiated its first ETF and is in the process of introducing more funds to the market. Further, in August, another Wall Street bank – Wells Fargo & Company (WFC) received regulatory approval to offer ETFs.
Amid the ongoing trend in the finance industry under which investors are increasingly becoming inclined towards passively managed products like index funds and ETFs compared with traditional mutual funds, foraying into such a market will be the driving factor for banks. Notably, the U.S. ETF market worth $1.9 trillion has more than doubled in the last five years.
Conclusion
Given the competitive environment and stringent regulatory landscape, banks are facing tough challenges in controlling costs and increasing revenue. This is certainly restricting their bottom-line growth. To make matters worse, a number of major banks have been encountering legal overhangs in recent times.
Further, due to a prolonged low interest rate environment, several banks are witnessing a continuous decline in net interest income and pressure on net interest margin. Thus, a significant turnaround seems elusive in the near term. Moreover, absence of credible improvement in the mortgage market is another headwind.
Therefore, given the underlying strength in the ETF market, it will be a prudent decision for banks to expand in this area. Currently, Goldman carries a Zacks Rank #3 (Hold). A better-ranked finance stock worth considering includes Piper Jaffray Companies (PJC) with a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment