Vanguard's Not the Only Threat to Active Managers

Truly passive index and exchange-traded funds are winning over many financial advisers. There are some holdouts among these middlemen who look after perhaps as much as $25 trillion. They are not rushing to move their clients into cheap beta-style ETFs4 for fear of seeing their own value diminished. But at the same time, these fee-based advisers and their clients may want to move away from out-of-favor and expensive active mutual funds.

Enter Goldman Sachs Group Inc., which has built the ETF equivalent of the T-1000 Terminator, a killer cyborg fund sent from the future perfectly calibrated to eliminate human managers by exploiting the growing world of fee-based advisers. The firm’s Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF, or GSLC, is a multi-factor fund loaded with all the bells and whistles a fee-adviser goes nuts for, which should scare the daylights out of an active fund manager. GSLC has taken in cash in all but two months of its three or so years in the market, accumulating $3.5 billion in assets even though it has underperformed, an unheard of feat for a smart-beta ETF.1