Goldman Sachs Group Inc (NYSE:GS) is launching a brand new fund aimed at investors looking to play defense in a volatile stock market.
What Happened: In a new prospectus filed with the SEC, the company outlined plans for its Goldman Sachs Defensive Equity ETF. According to the filing, the fund will be designed to achieve long-term capital growth while maintaining lower volatility than equity markets.
"The Fund will employ a 'Put Spread Collar' overlay strategy whereby the Fund simultaneously purchases a near-the-money put while selling (writing) an out-of-the-money call and put on the S&P 500® Index or other national or regional stock market indices (or related exchange-traded funds," Goldman said in the filing.
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In a nutshell, the goal of the new fund will be to provide similar returns to the SPDR S&P 500 ETF Trust (NYSE:SPY) but with lower volatility and more downside protection.
Why It's Important: The S&P 500 is down 18.8% year-to-date, and investors are understandably looking for ways to defend their portfolios from additional volatility and downside. Inflation numbers remain at multi-decade highs, and rising interest rates are threatening U.S. corporate earnings.
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Goldman is likely creating this new fund due to requests from its clients for more defensive options. Ironically, the fact that investors are seeking this kind of defensive investment and a major Wall Street bank such as Goldman is selling it could be a contrarian indicator that the worst of the 2022 stock market sell-off is already in the rear-view mirror.
In the filing, Goldman didn't include the potential ticker of the new fund or a prospective launch date. Investors looking to take a more defensive approach to the stock market already have several options.
The iShares MSCI USA Min Vol Factor ETF (BATS:USMV) is a fund designed to mimic the MSCI USA Minimum Volatility Index, which includes large- and mid-cap stocks that have historically demonstrated low volatility. The utilities sector is also known for its relatively low volatility, so the Utilities Select Sector SPDR Fund (NYSE:XLU) might be another good place to look for investors seeking to stay exposed to the stock market without the type of volatility they have experienced year-to-date.
Benzinga's Take: If the idea of Goldman's fund providing the same upside as the S&P 500 with less risk sounds too good to be true, it probably is. In the past three years, the SPY fund has generated a 35.8% total return compared to a 26.4% total return for the XLU fund and just an 18.4% total return for the USMV fund.
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