Goldman Sachs ActiveBeta International Equity ETF (GSIE)
On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the Goldman Sachs ActiveBeta International Equity ETF (GSIE) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
Chuck Jaffe: One fund, on point for today, the expert to talk about it. Welcome to the ETF of the Week. This is the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange traded funds with Todd Rosenbluth. He’s head of research at VettaFi. At VettaFi.com, you’ll find all the tools and research you need to be a savvy, smart investor in ETFs.
Todd Rosenbluth: It’s great to be with you, Chuck.
Chuck Jaffe: Your ETF of the week is–
Todd Rosenbluth: The Goldman Sachs Active Beta International Equity ETF (GSIE).
Chuck Jaffe: G-S-I-E. The Goldman Sachs ActiveBeta International ETF. That’s a mouthful with a few different things in there. So what’s the driving factor behind this being ETF of the week this week?
Todd Rosenbluth: So we talked about international investing and one country in particular recently. You know, the Olympics have started. I think people are thinking globally and looking around the world for ideas and investment ideas in particular.
This Goldman Sachs ETF does a great job of doing that. It is a multifactor ETF. We’ll dive into that in a moment. But it combines a number of different attributes to looking at individual companies and stocks. It does in an index low cost way. The active beta is a way of just telling you that it’s tilting on that traditional beta approach, and it’s relatively cheap. So we think this Goldman ETF is worthy of more attention.
Chuck Jaffe: Let’s dig into multiple factors, because there are a few things going on here.
Todd Rosenbluth: That’s right. So there’s a lot of research that shows that you can historically outperform by incorporating some of the following attributes. So quality, low volatility, momentum, and value, in particular. This Goldman Sachs ETF takes those four factors, which have historically outperformed the broader marketplace, and brings them together in one overall portfolio.
So it’s looking at individual companies across these various attributes, looking for the highest quality companies, looking for companies that are relatively cheap in terms of valuation, that have less risk from a volatility standpoint, and that have a strong relative strength. And I know that last part is certainly key to you and some of the listeners. So these factors have worked over time. We think this Goldman ETF does a great job of bringing those all together in one portfolio.
Chuck Jaffe: These factors have worked over time, but the research on factors typically suggests that a factor, value, or relative strength, or quality applied correctly can do better than the market. But sometimes when you put a few things together, you get mud.
I always equate it this way. Years ago, there was a time when somebody said, what’s your ideal mutual fund? And I laid out some criteria. I mean, this was more than 20 years ago. And somebody said, okay, smarty pants, what which funds do that? And I had somebody run those numbers because I didn’t have access to the internet in these old days, and they came up with not a great list of funds, but a rogues gallery like, ooh, I wouldn’t want that fund or I wouldn’t want this fund. So when you’re putting all those factors together, you’re not turning the rainbow into mud?
Todd Rosenbluth: So I don’t think that that’s the case. So certainly individual factors have shown that they can outperform for a period of time. There’s a certain time period where momentum does. There’s a certain time period where low volatility does well. What I like about this ETF is it’s bringing the best ideas together in one portfolio. Now this is intended to look somewhat similar to the broader marketplace and tilting towards these factors.
So you will find many of those large cap companies that you’d find in a broad market cap weighted strategy. But you’re going to tilt towards the companies that have the highest quality, or tilt towards the companies that have strong, momentum characteristics. So this is intended to be and I’m going to get ahead of where you might go in the future, a core replacement.
This is perhaps a smarter way, a different way of getting your broad international exposure. Instead of having the iShares MSCI EAFE ETF (EFA) or the Vanguard FTSE Developed Markets ETF (VEA), this Goldman Sachs ETF can be a great replacement. It’s cognizant of the market developments instead of just owning the companies because they’re large.
Chuck Jaffe: Before I get onto the question that you just set me up for, it’s got active beta in the name. You know, if you if you put it in the title, the audience should assume it’s important. Is active beta important to you on this fund?
Todd Rosenbluth: So active beta is the way that Goldman Sachs is talking about what people have used the phrase smart beta, or factor, or fundamental oriented, as opposed to, you know, traditional beta is just owning the largest companies within the benchmark in rank order in terms of size. So the MSCI Ether Index, which is one of those benchmarks people are familiar with, own the largest companies because they are the largest companies.
This Goldman Sachs ETF is going to hold companies based on their fundamental and valuation attributes. That’s something that’s important to us. So Goldman Sachs has a suite. There’s a US version. There’s an emerging markets version. GSI is a developed markets version. So it’ll have exposure to Japan, United Kingdom, Switzerland, and France what have you. Countries that you’re going to surely recognize when you’re watching the Olympics.
Chuck Jaffe: The timing of this presumably has more to do with markets than just the Olympics. Because we have had some foreign central banks cut rates ahead of the fed, etc. So is this also a call on where international investing stands right now?
Todd Rosenbluth: So we find that advisors have historically under have been underexposed to developed international markets. The U.S. equity market has been so much stronger for the last few years that you’re if you had a large strategic portfolio, you were tilted even more towards U.S. equities. So we think it makes sense, and certainly heading into a time period, as you mentioned, with interest rates are coming down, that could be a catalyst for some of these international markets.
We think heading in to the fourth quarter is a good time to be revisiting your beginning of the year allocation and making sure that you’re tilted enough towards the international equity marketplace. So, yes, the Olympics is just a reason for me to bring it up this week because week after week, I’ve got to bring you and the audience another new idea, and I know you can appreciate how hard that is. There’s 3000 plus ETFs. We’re going to highlight about 50 of them in a given year. But this is a good strategic allocation oriented ETF.
Chuck Jaffe: I like it, Todd. We should perhaps think of you not so much as the head of research for verify, but as the flag bearer for ETF land. That that could be it for you.
Todd Rosenbluth: I’d be very happy to carry that flag, for any ceremony that is being hosted.
Chuck Jaffe: Well, let’s talk about the ceremonial position that this fund could hold in someone’s portfolio. You have said this could be a replacement or an adjunct to a core. So, in other words, if somebody’s got a passive core, this would be your active piece and split it that way. But if somebody already has core holdings internationally, is this so much of an upgrade that, you know, barring significant tax consequences, you make a shift? Or, yep, you’ve learned about a new fund, it’s interesting stuff, but you’ve got a core in place, you don’t need more international?
Todd Rosenbluth: So I think this can be an alternative way of getting exposure to the international equity marketplace. It’s well diversified. It’s low cost for a fund that is not just buying the largest companies and holding them. There’s a rebalance that’s happening. Goldman Sachs is using its scale as an advantage. This could again, could be a replacement for your MSCI EFA based strategy.
Now again you mentioned and it’s worth repeating tax consequences. There’s not significant enough differences between this and your core MSCI EFA strategy to sell one and buy this. Unless you’re trying to tilt your portfolio to be smarter in the future. Investors, advisors have gotten more comfortable with not just owning the largest companies, but having valuation play a role within the portfolio. Having quality, fundamental characteristics play a role in the portfolio. They’re doing it mostly in the United States and not in developed internationally. We think they should, GSIE can be a great way of doing that.
Chuck Jaffe: It’s the Goldman Sachs Active Beta International Equity ETF, the ETF of the week from Todd Rosenbluth at VettaFi. Todd, great stuff, as always. We’ll see you again next week.
Todd Rosenbluth: See you next week. Hope you earned that gold medal.
Chuck Jaffe: The ETF of the week is a joint production of VettaFi and Money Life with Chuck Jaffe.
Yes, that’s me. And you can learn all about my hour-long weekday podcast by going to MoneyLifeShow.com, or by searching wherever you find your favorite podcasts. And if you’re searching for a favorite exchange-traded fund, well, there’s no better place than VettaFi. VettaFi.com has all the tools you need to be a better investor using ETFs. They’re on Twitter or X at @Vetta_Fi, and Todd Rosenbluth, their head of research, my guest, he’s on Twitter too, at @ToddRosenbluth. The ETF of the Week is here for you every Thursday. Make sure you don’t miss an episode by subscribing along. We’ll see you again next week until then, happy investing everybody.
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