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Goldman Looks to Crash ETF Party

Date: Monday, January 11, 2010
Author: Ian Salisbury, The Wall Street Journal

Belatedly, Goldman Sachs Group wants to join the exchange-traded-funds party.

The Wall Street bank, which already has a prominent ETF trading desk, has filed with the Securities and Exchange Commission for permission to launch a slate of these funds. Its decision follows similar me-too moves in 2009 by other well-known firms like Allianz's Pacific Investment Management Co., Charles Schwab and T. Rowe Price Group.

The exchange-traded-fund business has been growing at an impressive clip, with assets approaching $750 billion and nearly 800 funds.

These collections of securities have shown broad investor appeal because they can trade throughout the day, unlike traditional open-end mutual funds.

But gaining a foothold in the crowded industry could be tricky even for Goldman, often regarded as the premier firm on Wall Street. The Goldman name "carries a lot of weight," says Tom Lydon, an investment adviser who specializes in using ETFs. "The big question is, are they late to the game?"

A Goldman spokeswoman declined to comment on its ETF prospects.

Unlike Pimco, which launched its first ETF in 2009, and T. Rowe Price, which is in the planning stages, Goldman hints it may focus its attention on index ETFs rather than newer actively managed funds. The filing indicates Goldman's first ETF will be an index fund targeting Brazilian, Indian, Chinese and Korean stocks, an area already well covered by giant, heavily traded funds from BlackRock and Vanguard Group.

Of course, Goldman may have decided to start with an index fund because this is the most established type of ETF, and thus would be easier to gain SEC approval. So the index choice doesn't necessarily reflect its long-term business strategy.

Goldman Sachs's renown doesn't loom quite as large in the mutual-fund world as it does on Wall Street. Pensions & Investments, the financial bi-weekly, ranks Goldman, which launched its first funds in 1989, the 16th-largest fund manager overall.

Still, Goldman Sachs already plays a significant, if less visible, role in the exchange-traded fund world. The firm is known among professional investors for its ETF trading desk, which helps investors make large ETF transactions. It also converts ETF fund shares into stocks and vice versa, keeping ETF trading prices closely in line with their underlying values.

"Their experience in the ETF world is deep," says Scott Burns, ETF analyst at fund tracker Morningstar Inc.

Goldman already offers at least two exchange-traded notes, one tracking commodities and another tracking an index of closed-end funds.

These bond-like securities, which customarily follow indexes, appear to have attracted only moderate investor interest, together holding less than $100 million in assets.