Modest Style Bets, Modest Price
This multifactor ETF won't shoot the lights out, but it has a good chance to slightly outperform the S&P 500 over the long term.
Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC) offers exposure that's similar to the S&P 500 but tilts toward stocks with characteristics that have historically been associated with market-beating performance. These include low valuations, strong momentum, high profitability, and low volatility. This approach diversifies risk because each factor tends to work well at a different time. While the fund's factor tilts are modest, it has a low expense ratio to match, which gives it a reasonable chance to beat the market over the long term.
The portfolio is divided into four equally weighted sleeves that each tilt toward stocks with a different characteristic of interest. This simple approach is transparent, though a more integrated approach would probably be a bit more efficient. Each sleeve gives over- or underweightings to stocks from the large-cap selection universe based on the degree to which they exhibit the targeted style characteristic. The fund scales these active bets to give each sleeve a 4% target tracking error to its selection universe. Consequently, stocks with factors that introduce greater tracking error, like low volatility, receive lower active weightings. Together, these active bets partially offset one another, allowing the overall portfolio to maintain a 2% tracking-error target.
Alex Bryan does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.