CFRA Aanlyst Banks on Goldman Sachs ActiveBeta US Large Cap

09/25/2019 5:00 am EST

Focus: ETFS

Todd Rosenbluth

Senior Director of ETF & Mutual Fund Research, CFRA Research

The CFRA Focus ETF for September is Goldman Sachs ActiveBeta US Large Cap (GSLC). The ETF earns a top rating based on a combination of holdings analysis and fund attributes including costs, explains CFRA Research's ETF analyst Todd Rosenbluth in The Outlook.

Year to date through September 5, GSLC’s 20.6% total return is modestly ahead of the 20.3% for the SPDR S&P 500 Index ETF (SPY).

If the positive differential holds it would be the third consecutive year of outperformance as the smart-beta ETF declined less in 2018 and rose more in 2017 than the market-cap weighted SPY; we note GSLC did lag in 2016, its first full calendar year. On a three-year annualized total return basis, GSLC’s was in line at 13.0% (13.0%).

As rare as it is for any fund to show consistency in outperforming the S&P 500 on a calendar year basis, CFRA’s ETF Research holds that investors should not rely solely on past performance when assessing ETFs, as fund management is simply replicating a benchmark.

GSLC tracks a proprietary Goldman Sachs index that combines low volatility, momentum, quality and value factors to select securities; GSLC is rebalanced quarterly. CFRA independently views seven of the ETF’s recent top- 10 holdings as attractively valued based on our qualitative 12-month target-price-based STARS metrics.

Meanwhile eight of the top-10 earned an S&P Global Market Intelligence Quality Ranking of B+ or better for consistently increasing dividend and earnings in the past 10 years. Although there is significant overlap between GSLC’s 448 holdings and those of SPY, the weightings are often different.

For example, Microsoft (MSFT) and Apple (AAPL) are the two largest positions in GSLC, representing 3.5% and 3.2% stakes, respectively, smaller than the 4.3% and 3.7% in SPY. CFRA has Buy recommendations on both stocks, which boast B+ Quality Rankings.

Meanwhile, Walmart (WMT) is a 1.0% position in GSLC but a smaller 0.7% piece of SPY. CFRA has a Buy recommendation on WMT and the stock also has a B+ Quality Ranking.

CFRA Equity Analyst Garrett Nelson notes that when WMT recently beat quarterly consensus EPS estimates for the 15th quarter of the last 16, its U.S. e-commerce sales were particularly robust.

He further views the company’s grocery exposure as providing more defensive traits despite ongoing concerns regarding consumer spending trends and tariffs. Amazon (AMZN), Facebook (FB) and JPMorgan (JPM) are other top-10 positions held in the GSLC portfolio.

GSLC’s net expense ratio of 0.09% matches SPY and is below the equity ETF average. Meanwhile the fund trades with a tight bid/ask spread of $0.02.

Based on CFRA‘s technical analysis, GSLC has bullish trading tendencies. Since the beginning of the third quarter, GSLC has been one of ten most popular funds, gathering $1.5 billion in net inflows. We think investors seeking a low-cost alternative to a market cap weighted fund should consider GSLC.

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