Is Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF a Strong ETF Right Now?

Designed to provide broad exposure to the Style Box - Small Cap Blend category of the market, the Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF GSSC is a smart beta exchange traded fund launched on 06/28/2017.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is managed by Goldman Sachs Funds. GSSC has been able to amass assets over $482.74 million, making it one of the average sized ETFs in the Style Box - Small Cap Blend. This particular fund seeks to match the performance of the Goldman Sachs ActiveBeta U.S. Small Cap Equity Index before fees and expenses.

The Goldman Sachs ActiveBeta U.S. Small Cap Equity Index is designed to deliver exposure to equity securities of small capitalization U.S. issuers.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.20%.

It's 12-month trailing dividend yield comes in at 1.35%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

GSSC's heaviest allocation is in the Industrials sector, which is about 19.90% of the portfolio. Its Financials and Information Technology round out the top three.

When you look at individual holdings, Super Micro Computer Inc SMCI accounts for about 1.81% of the fund's total assets, followed by Jun 24 Cme Eminirus2k (RTYM24) and Comfort Systems Usa Inc FIX.

The top 10 holdings account for about 6.02% of total assets under management.

Performance and Risk

The ETF has gained about 0.99% so far this year and is up roughly 13.69% in the last one year (as of 06/07/2024). In the past 52-week period, it has traded between $51.83 and $65.55.

The fund has a beta of 0.98 and standard deviation of 20.98% for the trailing three-year period. With about 1297 holdings, it effectively diversifies company-specific risk.

Alternatives

Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Russell 2000 ETF IWM tracks Russell 2000 Index and the iShares Core S&P Small-Cap ETF IJR tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $59.83 billion in assets, iShares Core S&P Small-Cap ETF has $78.27 billion. IWM has an expense ratio of 0.19% and IJR charges 0.06%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Blend.

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