Goldman Sachs and Vanguard are taking advantage of the growing popularity of bond ETFs, which account for one-fifth of the U.S. ETF market but 40% of this year’s flows, according to Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA.
Goldman Sachs just launched its sixth bond ETF, the Goldman Sachs Access Investment Grade Corporate 1-5 Year Bond ETF (GSIG), a passive fund that comprises corporate bonds with maturities of five years or less.
It’s the second investment-grade ETF for the firm — the other is the Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB), which provides exposure to the broader U.S. investment-grade bond market and holds bonds with an average maturity of about 11 years, according to Morningstar. That ETF performed in the top quartile of its peers last year and year-to-date.
The new Goldman Sachs bond ETF is designed ”to provide investors an attractive option to get simple, transparent and liquid access to the investment grade credit markets, in a competitively priced vehicle backed by the global platform and resources of Goldman Sachs,” said Michael Crinieri, GSAM’s global head of ETF strategy, in a statement. Like GIGB, the new ETF has an expense ratio of 14 basis points.
Vanguard has plans to introduce its first U.S. ESG bond ETF, which will join an existing stable of 18 fixed income ETFs and of two other ESG ETFs — both equity ETFs — for U.S. investors.
The giant asset manager has filed a preliminary registration statement with the Securities and Exchange Commission to launch the Vanguard ESG U.S. Corporate Bond ETF, which will track the Bloomberg Barclays MSCI U.S. Corporate SRI Select Index, a rules-based index that screens out companies that fail to meet specific environmental, social and governance criteria. It will have an expense ratio of 12 basis points.
The ETF’s benchmark index excludes companies involved in the business of firearms, nuclear power, thermal coal and oil and gas or derive a certain threshold of revenues from those businesses. The index also excludes companies involved in the alcohol, tobacco and gambling industries and companies that fail to have at least one woman on their boards or fail to report board diversity.
Vanguard expects to introduce its new bond ETF in September. “The new fund affirms Vanguard’s commitment to providing investors with quality investment products and the ability to construct a portfolio that reflects their value,” said Kaitlyn Caughlin, head of the firm’s portfolio review department.
CFRA’s Rosenbluth says, “This relatively new adoption of fixed income ETFs” is underpinned by “investors seeing the liquidity, price clarity and diversification benefits of using these ETFs for asset allocation purposes and more tactical purposes.”
Federal Reserve purchases of ETFs and bonds as part of its multi-prong approach to providing liquidity to financial markets and support for an ailing economy during the pandemic-fueled recession “provide an additional catalyst,” for the growing popularity of bond ETFs, said Rosenbluth.
— Related on ThinkAdvisor: