The way Goldman lets investors mimic its investing strategies is through a so-called “exchange traded-fund” (ETF). An ETF is a fund that trades like a stock. It is made up of, for example, many different stocks but investors can buy and sell it in just one trade. Usually ETFs track a popular index, like the S&P 500, but in this case Goldman’s ETF will track one of the main investment strategies of its asset management division. It’s a strategy that takes certain key metrics into account and weights them based on Goldman’s experience -- it is a proprietary formula that they have come up with. The idea is that Goldman is making it easy for investors to get exposure to the stocks that Goldman’s investment algorithm suggests will perform the best.
Why should I care?
This is an example of a “smart beta” strategy and is marketed as, essentially, a smarter way to buy stocks while still keeping fees low. The Goldman ETF will charge investors only 0.09% per year, whereas most traditional investment managers might charge around 1%. Which is, of course, a huge difference in fee - more than 10x!
Originally posted as part of the Finimize daily email.
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