An incline in its Process Pillar rating is the primary driver of Goldman Sachs Innovate Equity ETF's upgrade to a Morningstar Medalist Rating of Silver from Bronze. The portfolio maintains a cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in momentum exposure and quality exposure compared with category peers. Momentum is the premise that stocks that have recently outperformed will continue to do so. With low momentum exposure, the portfolio is holding stocks that managers believe to be undervalued. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The team managing the passive strategy earns the strategy an Average People Pillar rating. The strategy's parent organization is industry standard, albeit with some strong attributes like overall reasonable fees, but is held back by an unfavorable lineup success ratio. This earns the firm an Average Parent Pillar rating.

Analyst Rating

Alphabet

Microsoft

Apple

NVIDIA

Amazon

Tesla

Eli Lilly

Advanced Micro Devices

Johnson & Johnson

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Goldman Sachs Innovate Equity ETF earns an Above Average Process Pillar rating. The most important driver of the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Low expenses across its parent firm's funds, whose fees, on average, rank in the middle quintile of their respective category, also contribute to the process. The pattern of low fees at the firm indicates that it is focused on delivering strong results for investors. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 47%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's modest success ratio suggests that the firm could do better across its fund lineup.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the Solactive Innovative Global Equity Index.  The fund seeks to achieve its investment objective by investing at least 80% of its assets in securities included in its index, and in depositary receipts representing securities included in its index and in underlying stocks in respect of depositary receipts included in its index. The index is designed to deliver exposure to companies that may benefit from technological innovation and the resulting changes in the economy across five key themes that are potential drivers of changes in the economy. 

 The portfolio is overweight in healthcare and consumer cyclical relative to the category average by 17.3 and 9.9 percentage points, respectively. The sectors with low exposure compared to category peers are technology and basic materials, with technology underweighting the average portfolio by 45.8 percentage points of assets and basic materials similar to the average. The strategy owns 471 securities and is diversified among those holdings. In its most recent portfolio, 17.7% of the strategy's assets were concentrated in the top 10 fund holdings, as opposed to the category’s 48.5% average. And finally, in terms of portfolio turnover, this fund trades less regularly than the typical peer in its category, which may result in a lower cost to investors.

Above Average

Process

Goldman Sachs’s team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating. The fund takes a solo manager approach, with Raj Garigipati as the only listed manager at the helm, who brings eight years of portfolio management experience to the table. They manage a total of 19 strategies, with solid long-term prospects. The strategies average a Bronze asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha relative to the category median in aggregate. With only one manager listed on the strategy, the passive strategy is vulnerable to key-person risk. 

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Average

People

Goldman Sachs Asset Management heads into an uncertain direction on multiple fronts, underpinning its Average Parent rating.
GSAM has long struggled with personnel turnover, with a steady degree of analyst departures and additions coinciding with leadership reshufflings over the past few years that includes the September 2022 departure of equity head Katie Koch. Meanwhile, parent company Goldman Sachs elected to merge its asset management and wealth management units in October 2022, reversing a decision to split them in 2020, and assigned Marc Nachmann to lead the unit. Although he is a longtime Goldman veteran, most of his prior experience has been with the firm’s investment bank. Potentially complicating his remit is the firm’s December 2021 acquisition of NN IP, whose traditional and sustainable-investing branches could add capabilities but will take time to integrate. Bolstering the firm’s sustainability credentials could be especially pressing given the SEC’s November 2022 fining of GSAM for past failings in its ESG-related operations. 
GSAM has some strengths worth highlighting. Portfolio-manager ownership statistics across the firm’s U.S. lineup have improved dramatically since the firm instituted a deferred compensation program of fund shares in early 2020, and GSAM has compelling capabilities within its quantitative equity franchise.

Parent

Goldman Sachs Innovate Equity ETF

GINN tracks an index that selects companies globally, believed to benefit from technological innovation and changes in the economy across five themes: data, finance, human evolution, manufacturing, and shifts with consumers.

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