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Goldman Sachs Wants To Lower The Smart Beta ETF Fee Hurdle

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Posted on: 17.09.2016

Almost 2 weeks ago, the annual Morningstar ETF Conference took place in Chicago.  With nearly 800 Smart Beta ETFs, & about 500 billion in AUM, Smart Beta was front & center.  Among the speakers was Matthew Schwab, a Managing Director at Goldman Sachs.  Goldman has recently taken a step into the Smart ETF market with 5 Smart Beta ETFs (Goldman refers to them as ‘ActiveBeta’).

In a question that seems like it may have been a setup for marketing plug, someone asked Matthew Schwab why Goldman Sachs only charges 9 basis points on a Smart Beta ETF that it offers, referencing Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC).  Schwab’s response was what Nate Geraci of The ETF Store described as “unbelievable”;

Goldman Sachs wants to lower the fee hurdle to where fee aren’t a part of the decision making process for investors…  we (Goldman Sachs) just want investors to pick what they believe is the best product and not have to worry about fees

That’s a radical statement coming from an investment bank with reputation of putting their interests first.   According to Geraci, there were nearly 200 people in the session and you could “see the jaws drop in the room”.

From a business perspective, I would ordinarily say that the low fee is the result of competition.  Goldman Sachs is attempting to capturing a hefty market share by coming in with a fee lower than their major competitor in the multifactor US equities fund space, the iShares Edge MSCI Multifactor USA (LRGF) ETF.   However, 9 bps fee of GSLC is 77% cheaper than the 35 bps fee of LRGF.  Perhaps Goldman is focusing on pricing just above operating costs, afterall a smart beta fund shouldn’t cost much, if any, more to operate than an index fund.   No matter what their motive is, for investors, the fund is a great option for a low cost Smart Beta ETF.  Hopefully Goldman keeps the fee low and their mentality/strategy on fee’s is reflected in their other funds.

Here’s the rest of the Goldman Sachs Smart Beta line up and their fees:

  • Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM) 45 bps
  • Goldman Sachs ActiveBeta Europe Equity ETF (GSEU) 25 bps
  • Goldman Sachs ActiveBeta International Equity ETF (GSIE) 25 bps
  • Goldman Sachs ActiveBeta Japan Equity ETF (GSJY) 25 bps
  • Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC) 9 bps

 

Corey Philip

Corey Philip is the founder of RealSmartBeta.com. His focus is on expanding investor knowledge of Smart Beta ETFs and quantitative investing. Learn more about Corey in the 'ABOUT' section of this website.

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