Goldman Sachs has launched a series of downside protection ETFs aimed at providing investors with a strategic edge during periods of market volatility. These newly introduced buffer funds, which include the Goldman Sachs U.S. Large Cap Buffer 3 ETF (GBXC), are designed to cushion investors against losses ranging from 5% to 15% in the market. As market movements continue to be unpredictable, these funds present a novel approach to managing risk and ensuring quicker recovery from downturns.
Buffer funds, a type of defined outcome product, have gained popularity in recent years, attracting billions of dollars from investors seeking protection against market declines. These funds are particularly appealing as they feature a mechanism that limits potential losses to approximately 15% when the market falls by about 25%. This is achieved through an extra buffer that activates under such conditions, providing additional security for investors.
The Goldman Sachs buffer funds stand out in several key areas. Unlike many competitors that reset annually, these funds reset quarterly, giving investors the option to choose a fresh version each month. This quarterly reset schedule offers flexibility and aligns with the firm's belief that the 5% to 15% range represents the optimal "sweet spot" for mitigating losses.
"The feedback we were getting from clients was, I'm in the market place. I can live with down a few percent. That's kind of like what I expect. It gets painful when I'm talking down 5 to down 15," – Brendan McCarthy, global head of ETF distribution at Goldman Sachs Asset Management.
In addition to the strategic reset schedule, the Goldman Sachs funds come with a 0.50% fee, making them more cost-effective than many existing buffer funds on the market. This competitive pricing is likely to attract investors who are mindful of fees while seeking effective downside protection.
"These are meant to basically kind of help you to sink less deeply to help you recover faster," – Oliver Bunn, portfolio manager and global head of the Quantitative Investment Strategies Alternatives team within Goldman Sachs Asset Management.
The funds also feature upside caps ranging between 5% and 7%, allowing investors to participate in potential market gains while maintaining a level of protection. This balanced approach is particularly attractive for those looking to safeguard their investments without sacrificing growth opportunities.
"With all the uncertainty that we have now and the fact that stocks are trading at lofty multiples, that's when you may well have some protection on," – Stuart Chaussee, a registered investment advisor based in Beverly Hills, California who regularly uses buffer ETFs from multiple fund issuers.
As the underlying index, the SPDR Portfolio S&P 500 ETF (SPLG), is currently 4.84% below its record highs, these buffer funds offer a timely solution for investors anticipating continued fluctuations. The funds' design helps investors recover more swiftly from downturns by minimizing the depth of losses during volatile periods.
"You could show a loss in your position, but as long as you hold on to it to the next reset, then you'll get the published parameters," – Stuart Chaussee, a registered investment advisor based in Beverly Hills, California who regularly uses buffer ETFs from multiple fund issuers.