A Closed End Fund ETN???

December 14, 2007

Goldman Sachs and Claymore launch an unusual new fund...

Since their inception, exchange-traded notes (ETNs) have been acknowledged as a useful vehicle for gaining exposure to some of the more exotic areas of the market. Goldman Sachs is upholding ETNs' reputation with the launch earlier this week of the Claymore CEF Index-Linked GS Connect ETN (NYSE Arca: GCE).

GCE tracks Claymore Securities' index of 75 closed-end funds, which is calculated by Dow Jones Indexes. The component funds are selected and weighted based on liquidity, distributions and market valuation, according to Goldman Sachs Managing Director Karen Fang.

GCE's expense ratio of 0.95% is less than that of Goldman Sachs' other ETN, the GS Connect S&P GSCI Enhanced Commodity Total Return Strategy Index ETN (NYSE: GSC), which charges 1.25%. However, both Goldman Sachs ETNs are more expensive than the rest of the ETNs currently trading—all of those charge a uniform 75 basis points.

GCE's underlying index includes the effect of the expenses associated with its component funds, so the 0.95% expense ratio is on top of that. However, a Goldman Sachs spokesperson pointed out that the index's component funds trade at an average discount of more than 10%.

The real questions about this product lie in the demand. It's a fixed-income product that promises the return of a basket of closed-end funds—that's a bit obscure. However, there aren't really that many—if any—opportunities to capture the performance of an index of closed-end funds, either.

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