Exchange traded funds are an increasingly popular investment sector, and to take advantage of the growing market, Goldman Sachs (NYSE:GS) has filed for regulatory approval with the U.S. Securities and Exchange Commission to launch market-tracking indexes for several emerging markets.
The first ETF from Goldman Sachs will focus on the top 85 percent of companies as measured by market value in China, India, Brazil and Korea, according to the filing. The index itself will be created by an unnamed company not connected to Goldman Sachs.
Much of what makes an ETF so attractive is their simplicity, they’re traded like stocks on an exchange, and they’re primarily passively managed, which means the cost for management overhead is low, and so the fees related to investing in the funds are minimal in contrast to most other investments.
Investors like them because they’re normally very simple to understand and inexpensive to invest in. While there is still the need to know what the underlying securities are and what their potential is, the focus of an ETF is usually very straightforward and targeted, allowing investors to invest in them without a lot of concern over the complexity involved with a number of other investment vehicles.
For example, an ETF could invest in four specific commodities. All one needs to do in that case is do their research on the supply and demand scenario, along with the current economic conditions to get a good understanding where those four commodities will be going.
In the case of the initial ETF tracking the top 85 percent of the stocks in China, India, Brazil and Korea, one only needs to have a grasp of the potential of those countries as a basket of markets, to understand the overall potential, rather than attempt to figure out individual management of each company within the vast number of countries represented by an Exchange Traded Fund like this.
For Goldman Sachs, this of course offers great upside potential to generate more revenue from a market which is growing on a consistent basis with a lot of room to expand before it matures.
This should be a good move by them, and should generate significant revenue and predictable profits because of the primarily passive character of the nature of the ETF investment vehicle itself.
It’s low cost for Goldman Sachs and low cost to the investor; a great combination which should bring tons of new revenue based on numerous smaller pieces of a huge and growing pie.
