Goldman Sachs (NYSE:GS) Ramping Up its ETF Strategy

With exchange-traded funds (ETFs) being among the fastest growing segments in the financial industry, Goldman Sachs (NYSE:GS) has started to focus on looking to that segment for growth and expansion.

The investment banking behemoth launched its first salvo by putting together a fund named the Dynamic Allocation Fund, built to deal with the ups and downs of the market place by focusing the fund on “long-term capital appreciation, diversification and flexibility” of those asset classes they include in it.

Not long ago Goldman also filed for approval to offer their own suite of ETFs.

At this point in time, the ETF industry makes money on lots of plays making a little money at a time, as the vast majority of ETFs aren’t actively managed, keeping the fees associated with investing in them very low.

That has been one of the strengths of the ETFs, as they are extremely simple to understand as to what they’re tracking and investors can have a good, solid and passive investment vehicle as a result; the reason they are increasing so quickly in popularity.

It’s unsure at this time if Goldman will continue on with that strategy for its own ETFs, as there is a growing move towards actively managed funds, primarily because the mutual fund industry sees the potential and real threat emerging as investors find they can get as good returns with less fees or costs.

If the general market really tunes into that, it could start an avalanche of investors moving their money out of mutual funds and into the ETFS. That has been the reason actively managed ETFs are starting to be experimented with to address that challenge.

A major reason this hasn’t happened yet is because actively managed ETFs will probably have to have a personality behind it to be successful and differentiate, as that’s a key factor in many people choosing mutual funds; the manager running it.

It will be interesting to see which direction Goldman Sachs opts to take, as there would be more money and incentive for quality managers to enter into the sector if the rewards are greater, but it also creates the problem of whether an individual or institution would pay more in fees just for the purpose of investing what essentially comes down to a personality.

Another factor is the competition will get fierce in this sector, and while Goldman Sachs is well-positioned to take on any competitors, it becomes a question of the profitability related to entering into the ETF field which is will determine their success or not.