The Goldman Sachs Group, Inc. (GS) has jumped on the bandwagon of Wall Street banks, which are targeting the fastest growing market of actively managed exchange-traded funds (ETFs), Reuters reported. Last week, Goldman sought the U.S. Securities and Exchange Commission’s (SEC) approval to foray into the ETF market with a series of active ETFs.
According to the filing, Goldman aims to initiate the equity dividend ETF as its initial fund. The initial fund named as the Goldman Sachs Equity Dividend Fund will endow dividend-paying U.S.-listed equities.
A separate filing was also filed by Goldman on Friday seeking regulatory approval for self-index, allowing the Wall Street bank to introduce funds based on its created in-house proprietary indexes.
Previously, around five years ago, Goldman sought regulatory approval for initiating passive index-tracking ETFs, though such funds were not launched. Therefore, the recent filing is the first step towards foraying into the active ETF market.
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 a 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 Arlington Asset Investment Corp. (AI) 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