Goldman Sachs Future Planet Equity ETF (GSFP)

overall rating:

1.5

planets

Malina Wojtylo
8/5/2021
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Launched on 7/13/21, the Goldman Sachs Future Planet Equity ETF (GSFP) is the new kid on the block. GSFP is an active ETF, which means it will trade as a stock on the NYSE Arca and be actively managed by Goldman Sachs. The fee structure of GSFP is an expense ratio of 0.75%. Higher expense ratios are typically associated with ESG ETFs in general and with actively managed ETFs in comparison to passive index ETF options. In a CNBC interview with Katie Koch, the Co-head of Fundamental Equity for Goldman Sachs Asset Management argued that an expense ratio of 0.75% falls within the average expense ratio of active ETFs. Koch justified her argument by stating that the active management of GSFP offers differentiation from index ETFs, enabling investors to future-proof their portfolio. The idea behind her argument is that index ETFs will miss out on emerging trends in sustainability as the economy shifts onto a more sustainable path. For some, the expense ratio of GSFP may not outweigh the benefits of the type of exposure and impact this ETF is intended to provide.

What it's made of:

2

GSFP is composed of 54 holdings, as of 7/22/21, with the intention to remain within the range of 30 – 60 holdings. The low number of holdings should leave the door wide open to criticism of unethical holdings, helping to ensure that GSFP invests only in companies who have sound ESG characteristics. Koch stated GSFP will invest exclusively in companies that are strong across all ESG characteristics and will emerge to be the solution providers to climate transition, in an interview with CNBC. GSFP invests in companies that Goldman Sachs believes to be aligned with the key themes of the fund, which are clean energy, resource efficiency, sustainable consumption, circular economy, and water sustainability.

The sector weights of the industries the 54 holdings fall into, as of 7/22/21, are broken down as Industrials (30.9%), Materials (24.9%), Information Technology (18.7%), Utilities (11.9%), Consumer Discretionary (3.3%), Consumer Staples (3.2%), Health Care (3.1%), Energy (2.1%), and Cash (0.1%), according to holdings and characteristics of GSFP provided by Goldman Sachs. A problem I have with GSFP’s sector weights is the low weight of energy, making up only 2.1% of the overall holdings. The energy sector weight should be more balanced with other sectors, such as the industrial and material sectors, especially with the emphasis Goldman Sachs places on clean energy as one of the key themes of the fund.

How it's made:

1

GSFP is an active ETF, meaning Goldman Sachs investment professionals actively manage GSFP and make trades to generate returns. GSFP is traded on the NYSE Arca and is required to display all holdings daily. Approximately 2% of funds in the $3.9 B ETF industry are actively managed, according to Forbes Advisor. The rarity of this type of ETF sets GSFP apart from other ETFs. Most ETFs are passively managed, tracking an underlying index. Index ETFs are slow to reflect changing markets since this type of fund is based on an underlying index that lags in response to innovation. The idea that actively managed ETFs can respond to rapidly changing markets is attractive to investors.

Active ETFs charge a higher expense ratio than passive index ETFs. GSFP follows this ETF trend, with its high expense ratio of 0.75%. In a CNBC interview with Katie Koch, the Co-head of Fundamental Equity for Goldman Sachs Asset Management argued that a 0.75% expense ratio falls within the range of where active ETF are being priced at. Koch stated that with GSFP’s 0.75% expense ratio, investors get the advantage of transparency, tax efficiency due to fewer taxable events, and the ease of trading as an ETF. According to Forbes Advisor, actively managed ETFs charge an average expense ratio of 0.69%, while index ETFs charge a lower average expense ratio of 0.18%. The steep expense ratio of GSFP falls above the already high average of active ETFs. Transparency should not come at a cost. The expense ratio of GSFP should be lower to signal that message to ESG investors and compete with active ESG ETFs with a lower expense ratio than that of GSFP.

Who makes it:

0.5

GSFP is offered by Goldman Sachs Asset Management. The stock selection for GSFP is conducted by the Goldman Sachs Fundamental Equity team, composed of over 80 investment professionals with an average of 14 years of experience, according to the description provided by Goldman Sachs of the GSFP management team. According to the same description, stock selection for GSFP is implemented by the Goldman Sachs Quantitative Investment Strategies team, composed of over 95 investment professionals with an average of over 15 years of experience. I think it’s useful to provide the average experience of the investment professionals involved in GSFP to show the fund is over-sought by those who have experience within the industry. However, average experience does not equate to gender identity, age, education, ethnicity, race, religion, sexual-orientation, disability, or other traits of an investment professional, all of which come together in the creation of a team of well-rounded investment professionals that contribute to an ETF. Any of the above traits or combination thereof would have been more meaningful in describing the demographic of the investment professionals involved in GSFP than by only providing information on the average experience of each group involved.

GSFP was inspired in part by Goldman Sachs’ commitment made in 2020 to invest $750 B in ESG financing, investing, and advisory by 2030, as included within the Goldman Sachs 2020 Sustainability Report. I would argue that Goldman Sachs could naturally invest $750 B into ESGs by 2030, with a pledge or no pledge. To this point, Josh Goldstein, Head of the Goldman Sachs Sustainable Finance Group, emphasized the natural growth of ESGs by 2030 and the investment opportunities that will follow the growth during a CNBC interview about the pledge. Goldstein’s point about the natural growth of ESGs by 2030 align with the predicted profitability of the ESG industry, not in response to the anticipated dire environmental and social needs by 2030.