ETF Watch: Goldman Debuts Smart Beta Bond Fund

Today Goldman Sachs is rolling out an ETF that will offer a smart-beta twist on the investment-grade corporate bond space. The Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB) will track an index derived from the Citi US Broad Investment Grade Corporate Index, which covers debt denominated in U.S. dollars.

According to Michael Crinieri, Goldman's head of ETF strategy, the fund is designed to "deliver smoother performance at a lower cost."

GIGB comes with an expense ratio of 0.14% and is listed on the NYSE Arca exchange.

Methodology Targets Leverage, Operating Margin
The index methodology first screens out any bonds from the parent index that have less than $750 million outstanding or an issuance size below $2 billion. Securities must also meet certain liquidity requirements.

The methodology then sorts the remaining bonds from the parent index based on whether they fall into the industrials, utilities or financials categories, and ranks them within their sectors based on operating margin and leverage, counting each as being of equal importance. From there it selects the highest-ranking securities, the prospectus said.

Limiting Exposure

“By screening for both liquidity and fundamental factors, the Index seeks to limit exposure to illiquid, volatile and underperforming assets,” said Jason Singer, one of GIGB's portfolio managers.

As of the end of May, the underlying index includes 1,941 components and has a weighted average maturity of 10.5 years.

Although there are passively managed smart-beta bond ETFs that have been around for some time, no fund has really stood out in the space. The largest appears to be the PowerShares Fundamental Investment Grade Corporate Bond ETF (PFIG), which launched in 2011, has about $41 million in assets under management and comes with an expense ratio of 0.22%

However, given that no other fund relies on operating margin and leverage to screen components, and given its rock-bottom pricing at 14 basis points, GIGB may have the competitive edge to gain a true foothold in the space.

Contact Heather Bell at [email protected].