Cheaper Equal Weight Equity ETF Debuts

September 14, 2017

Goldman Sachs is adding to its lineup of smart-beta equity ETFs, with the launch of an equal-weighted large-cap equity ETF that will compete with the $13.6 billion Guggenheim S&P 500 Equal Weight ETF (RSP).

The Goldman Sachs Equal Weight U.S. Large Cap Equity ETF (GSEW) comes with an expense ratio of 0.09%, less than half of what RSP charges, at 0.20%.

GSEW lists on the Bats Exchange, which is owned by ETF.com parent company CBOE.

According to Tony Kelly, head of product development for Goldman’s ETF business, GSEW is just the latest building block in the firm’s lineup of smart-beta ETFs.

“We believe ETFs are used by investors as building blocks,” he said. “We think it makes sense to have a suite of building blocks, and that’s how we think about each individual ETF we have.”

“It’s become obvious to us that a strategy like this is in demand in the marketplace,” Kelly said.

GSEW is priced the same as Goldman’s flagship smart-beta ETF, the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC), which made waves when it launched, as it was a smart-beta fund that cost the same as the SPDR S&P 500 ETF Trust (SPY). So, basically, Goldman is doing it again—marketing a smart-beta ETF at a cap-weighted price.

Competitive Pricing

Kelly says that being a large asset manager with the ability to leverage its own infrastructure is what allows Goldman to price its ETFs so competitively.

The other interesting point of differentiation from RSP is the fact that GSEW does not track an alternatively weighted version of the S&P 500. Although it is arguably the world’s best-known index, the S&P 500 is not a fully rules-based index, something many people do not realize. Components are selected by committee based on guidelines, and it tends to include midcap stocks.

GSEW’s underlying index, the Solactive US Large Cap Equal Weight Index, in contrast, is entirely rules-based, and essentially covers the 500 largest U.S. companies, which it equal-weights. This difference means that investors in GSEW will be getting purer exposure to the U.S. large-cap space.

“We really do like the rules-based approach of this Solactive index,” Kelly said, noting that GSEW’s underlying index is “probably what you would think the S&P 500 actually is.”

Differing Reconstitution

GSEW’s underlying index is rebalanced on a monthly basis, while RSP’s underlying is rebalanced quarterly. Further, the S&P 500 Index (and its equal-weighted counterpart) has no scheduled reconstitution—companies are added and deleted on an as-needed basis, or when the committee thinks that should happen. GSEW’s index is reconstituted every six months.

Kelly says that as a result of its rules-based methodology, GSEW’s holdings have a more “new economy” tilt that is more reflective of the current economy, pointing out that, while the S&P 500 does not include Tesla—one of the country’s largest automakers—GSEW’s Solactive index does.

Contact Heather Bell at [email protected]

 

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