Goldman Sachs Asset Management launches new defined outcome ETFs

By Suzanne McGee

(Reuters) – Goldman Sachs Asset Management (GSAM) has launched a pair of defined outcome exchange-traded funds (ETFs), a group of products that use options strategies to offer upside exposure to stocks while cushioning downside risk.

The new funds – the Goldman Sachs S&P 500 Core Premium Income and the Goldman Sachs Nasdaq 100 Core Premium Income ETF – will use an options overlay strategy to limit downside risk and generate income, said Michael Crinieri, global head of ETFs at GSAM.

Managers will sell upside exposure on a portion of the total portfolio, and use that income to offset downside market risk and increase yield.

As market volatility rises, so would income from the options strategy, Crinieri said. In a volatile market, GSAM may only need to write options on 25% of the portfolio to produce the yield it wants to generate, leaving investors to capture the full upside of the remaining 75%.

When markets are rangebound, that percentage of the portfolio with an options overlay may rise as high as 75%. Typically, Crinieri said, it should hover around 40% in each of the funds.

Defined outcome products are a relatively new corner of the ETF landscape, although the options strategies themselves are well established. According to data from Morningstar Direct, assets in these funds – sometimes also referred to as ‘buffer ETFs’ – now approach $25 billion, up from only $108 million as of late 2018.

“We started looking at developing enhanced income products like these in 2005,” said Monali Vora, head of wealth investment solutions at GSAM. “Clients want this kind of consistent and predictable income.”

In a report published in January, Morningstar noted that the typical defined outcome ETF carried a fee of between 0.75% and 0.85%. GSAM said its fees will be 0.29%.

(Reporting by Suzanne McGee)