Goldman Sachs Asset Management has introduced a new feature on its Goldman Sachs Tax-Advantaged Core Strategies that allows the asset manager to “look through” to ETF underlying holdings and actively monitor the risk/tax tradeoff of those holdings. The feature is initially available to the registered investment advisor channel.
Advisors can move clients’ eligible equity ETFs into a GSAM direct indexing account, and GSAM will rebalance the portfolio to diversify around the underlying holdings. The portfolio management team will consider the stock, sector and risk of the underlying holdings in the ETF. It will then manage, trim or sell existing ETF positions based on risk and tax consequences. They will also incorporate ETF fees into the analysis.
“Advisors have looked to us for 25 years to risk manage and diversify individual stocks tax efficiently,” said Monali Vora, global head of wealth investment solutions at GSAM, in a statement. “As their clients’ ETF exposure grew, their direct feedback to us was that they want us to consider current ETF exposure and tax consequences when merging their equity assets.”
The portfolio management team is more likely to hold ETFs with relatively lower tracking error to the SMA benchmark and higher appreciation; they are more likely to sell ETF positions with higher tracking error and lower appreciation.
Goldman Sachs currently has $411 billion in assets under supervision in separate managed accounts and $191 billion in direct indexing assets. In October, the asset manager struck an agreement with TAMP firm GeoWealth to build open-architecture custom models for its RIA clients. The custom models will incorporate SMAs, ETFs, direct indexing, mutual funds and alternative investments. Last month, GeoWealth said it will be live with direct indexing and then private market investment options by the end of this quarter.
Recent research from Cerulli Associates found that RIAs still use direct indexing in limited quantities. Only 18% of advisors reported using direct index strategies, up somewhat from 2023’s 16%. And the hill looks steep for more advisors to start implementing them, with 26% of advisors choosing not to use direct indexing with clients despite having access to it and 12% not even knowing what it is.