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Goldman Sachs launches innovation ETF to Rival ARKK

On September 16th, Goldman Sachs investment bank announced the launch of a Goldman Sachs Future Tech Leaders ETF under the ticker "GTEK." The fund is focused solely on tech firms with a market cap of less than $100 billion with growth potential. Sung Cho, the co-manager of the portfolio, described the motivation behind the new ETF by saying, "For the last 20 years, [our ETFs] have been focused in the U.S. and in mega cap tech companies. We believe we are at a key inflection point where innovation is expanding beyond the U.S., as well as beyond the market cap spectrum." This move is Goldman Sachs' response to ARKK's innovation fund. Both funds are tapping into the market for actively managed ETF's focused on nascent tech companies.

Worth $25 billion in net assets, ARKK has the largest active equity ETF focused on burgeoning tech companies. Managed by Catherine Wood, the fund is well-respected and has been successful thus far. ARKK's main innovation fund gained 150% last year as its tech holdings got a boost from the coronavirus. Close to half of the innovation fund comprises ten large holdings in companies such as Spotify, Roku, Coinbase, Zoom, and Shopify. The fund's largest holding, however, is in Tesla, with roughly 3,000 shares. The fund also holds Robinhood and is bullish on the future of Bitcoin and other digital currencies. Wood noted that "bitcoin is much more than just a store of value or digital gold. Bitcoin, in particular, is a new global monetary system. It's a rules-based monetary policy, which is completely decentralized and therefore is not subject to the whims of policymakers. In fact, it's a hedge against the whims of policymakers, especially in emerging markets."

Her bullishness on digital has gained her many fans but drawn skeptics like high profile investor Michael Bury.

Goldman Sachs fund will differ from rival ARKK's in a few ways. Primarily, Goldman's fund will be more global and not take an all-cap strategy that many of its competitors have. Goldman's fund has a goal of 50% of their investments being non-US. Currently, this number stands at only 37.9%. This includes a large stake in MercadoLibre, the South American equivalent of Amazon. The fund has 66 holdings, mostly in cybersecurity, fintech, digital transformation, smart components, and biotech. Other significant holdings include Marvell Technology, Hubspot, and Workday.

Lesser-known investments like a 2.3% stake in Entegris, worth $17.04 billion, are also in the fund's top holdings.

To summarize, Katie Koch, the co-head of the Fundamental Equity business at Goldman Sachs Asset Management, said, "With almost a quarter of S&P 500 market capitalization in the top 1% of stocks, many investors are overexposed to mature U.S. mega cap technology companies."

The two ETF funds are both bullish on the future of tech funds without behemoth market caps. According to Catherine Wood, "I do not believe that the average investor understands how productive these next five to 15 years are going to be [for these stocks] as these S-curves feed one another and enter exponential growth trajectories that we have never seen before." The ARKK innovation fund has returned 5.09% YTD but 34.27% since its inception. The Goldman fund is newer and down 1.9% since its launch due to market volatility but has outperformed the S&P 500 and Nasdaq Composite. The fund has 72% I.T. holdings and has a P/E ratio of 49.08. Further, the ETF is seen as compelling, according to Mike Crinieri, Global head of ETFs within Goldman Sachs Asset Management, because it is more tax-efficient, transparent, and trading flexible than a traditional mutual fund.


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