Goldman Sachs Joins Bond ETF Party -- Update
June 08 2017 - 9:47AM
Dow Jones News
By Liz Hoffman
Goldman Sachs Group Inc. launched an exchange-traded fund
Thursday that gives investors a cheap way to invest in corporate
bonds.
The fund, which launches with $50 million, tracks an index of
bonds issued by investment-grade rated companies.
It is one of three new funds Goldman plans to launch in the
coming months that track fixed-income assets, branching out from
traditional ETFs that mostly mirror baskets of stocks. The other
two will focus on emerging-market government debt and riskier,
low-rated corporate bonds, according to recent regulatory
filings.
Bond ETFs have emerged as a lucrative niche on Wall Street in
recent years, promising buyers the steady income of bonds in a
package that is as easy to trade as stocks. The ETF industry is
still dominated by stock products, which account for more than
three-quarters of the roughly $4 trillion in exchange-traded
products, according to BlackRock Inc.
But their growth has sparked concerns from the Securities and
Exchange Commission and others that their popularity, combined with
thin markets for many of the underlying bonds they hold, are a
recipe for trouble during times of market turmoil.
The worry is rooted in the fact that many corporate bonds don't
trade often. So if the bond market declines and ETF investors head
for the exits, fund managers might not be able to meet redemption
requests without further driving down prices, exacerbating a
downturn.
"The obvious risk -- perhaps better labeled the 'liquidity
illusion' -- is that all investors cannot fit through a narrow exit
at the same time, " Bill Gross, the well-known bond investor and
portfolio manager at Janus Henderson, wrote in 2015.
Goldman's fund can invest up to 15% of its assets in illiquid
bonds. These are defined as instruments that couldn't be sold
within seven days at the prices at which Goldman values them,
according to a prospectus filed in March with the SEC.
The Wall Street firm launched its first ETF in 2015 and eight
have gone live so far, part of its effort to grow its
asset-management arm and grab a share of the passive-investing
craze.
The funds have attracted more than $4 billion so far, mostly by
undercutting the competition on price. Most of Goldman's funds are
priced at or slightly less than comparable offerings from low-cost
giants like Vanguard Group and BlackRock.
Goldman's new bond fund charges investors 0.14% a year, versus
0.15% for a similar ETF run by BlackRock.
That is in contrast to Goldman's traditional businesses of
trading and investment banking. For those, the firm is known for
elite services that carry big fees.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
June 08, 2017 09:32 ET (13:32 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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