Goldman Sachs launches an ESG ETF with a go-anywhere, any-size approach

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A new Goldman Sachs exchange traded fund is entering the crowded environmental, social and governance (ESG) investing class hoping to stand out: It’s actively managed, transparent about its holdings, invests in global companies of all sizes and isn’t based on an index.

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The New York-based investment bank Thursday launched Goldman Sachs Future Planet Equity ETF which is investing in companies that are working on environmental problems aligned with five themes: clean energy, resource efficiency, sustainable consumption, the circular economy and water sustainability.

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Katie Koch, co-head of fundamental equity at investment unit Goldman Sachs Asset Management, says Goldman went with a global, all-cap active approach to tap into companies that are underrepresented in traditional market-cap weighted benchmarks.

“Traditional benchmarks are very backward-looking by definition; they’re allocating capital to companies and themes that have worked in the past,” she says.

The bank started the ETF because, it says, “we are on the cusp of a sustainability revolution that could have the scale of the industrial revolution and the speed of the digital revolution,” she says, adding that Goldman sees alignment between global governments, corporations and consumers on sustainability.

“We know that the millennial consumer is very committed to a sustainable planet and actually willing to pay a premium for products and services that are aligned with a sustainable planet,” she says.

All-cap focus

The ESG ETF field is crowded, especially with U.S. large-cap ETFs. Goldman’s global, all-cap focus stands out from typical offerings that hold investor favorites Apple Facebook and Microsoft which was by design, Koch says.

The fund’s top-five holdings are Enel SpA Ecolab Daikin Industries Xylem and Ball and the top three sectors are industrials at 32.5%, materials at 25% and information technology (IT) at 19%.

Goldman Sachs Future Planet Equity, which has an expense ratio of 0.75%, is a concentrated portfolio of 40 to 60 companies. It was seeded with a little less than $4 million. Mike Crinieri, global head of ETFs at Goldman Sachs Asset Management, says Goldman plans to invest some of its own capital in the fund.

Alexis Deladerrière, portfolio manager for the new ETF and head of international developed equity markets for Goldman Sachs Asset Management, says the firm was managing a similar strategy for non-U.S. investors for 18 months and wanted to bring it to the U.S.

Deladerrière says about 20% of the strategy will be invested in companies with under a $10 billion market cap. These mid-cap and small-cap firms are more likely to come up with innovative climate solutions, he says.

“This is why we want to be all-cap. These are global problems that are being addressed by all companies around the world, and we want to be able to access innovation,” he says.

Betting on hot trends

The new Goldman fund reflects a few of the hottest investing trends: thematic and actively managed ETFs. Some investors lump ESG investing into the thematic category, which are narrowly focused funds that draw holdings from various sectors under a theme, such as 5G or gaming. Others say the ESG category has its own subthemes.

One of the biggest active, thematic fund launches for 2021 was an ESG fund, BlackRock Inc.’s now-$1.4 billion U.S. Carbon Transition Readiness ETF which debuted in April, and received significant institutional support including the California State Teachers’ Retirement System.

In the first half of 2021, two-thirds of the more than 200 new ETFs launched were actively managed products, according to CFRA Research. Those issuers were no doubt hoping to match the success of ARK Invest and its $23.6 billion ARK Innovation ETF

A concern of active managers is that full transparency can lead to front-running by other investors. An ETF that publishes holdings daily enables others to track its holdings.

Deladerrière says short-term impacts from investors seeing what companies are buying or selling for the fund isn’t a worry because their investment horizon for this fund is long-term with low turnover.

“If you invest for five years, it takes you three days to come in and three days to get out. It’s not really going to make a difference to your return. So we’re not really worried or fearful of transparency. Investors want this transparency,” he says.

Debbie Carlson is a MarketWatch columnist. She doesn’t own any of the funds or stocks mentioned in this article. Follow her on Twitter @DebbieCarlson1.

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