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Moody's: Goldman Sachs takes ETF price war to smart beta

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Traditional active managers looking to smart beta as a product salvation might want to think again after Goldman Sachs Asset Management (GSAM) introduced an exchange-traded fund (ETF) priced below 10 basis points, credit rating agency Moody’s has argued.

On Monday GSAM announced plans for a new smart beta ETF with a 9bps management fee. This is well below the management fees for other smart beta ETFs, aside from those sponsored by Vanguard, Moody’s said.

“Much of the hope and investment traditional managers placed into smart beta as a product salvation may be at risk”

To date, most smart beta products had been priced between 24-39bps, or roughly half of the price of the traditional actively managed equity mutual fund of 63bp.

In becoming the first major market participant to signal pricing of less than 10bps for smart beta products, GSAM had expanded the ETF “price war” beyond standard index tracker ETFs into smart beta strategies, according to Moody’s.

This implied the industry had misguided assumptions about smart beta products attracting higher pricing. The rating agency suggested this could spell trouble for traditional active managers who have been investing resources in smart beta products in the hope that these would allow the managers to grow assets without eating too much into revenue.

Stephen Tu, vice president, senior analyst at Moody’s, said smart beta products would continue to grow and attract assets at a fast pace, but the vast majority may not be able to command a meaningful premium over vanilla index products.

“As a result, much of the hope and investment traditional managers placed into smart beta as a product salvation may be at risk,” he said.

In Moody’s eyes, this was negative for the creditworthiness of traditional active managers entering the smart beta market, such as Legg Mason, Franklin Resources and Janus Capital Group, but also for existing smart beta managers such as Invesco, BlackRock and State Street.

The latter were likely to respond to GSAM’s move by lowering prices of their existing products, said Moody’s.

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
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    Closing date: 2019-06-28.

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