Goldman Sachs ActiveBeta® Japan Eq ETF's Average People Pillar and Process Pillar ratings result in a Morningstar Medalist Rating of Neutral. The portfolio maintains a cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy’s management team earns an Average People Pillar rating. The strategy merits an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight yield exposure and volatility exposure compared with category peers. High yield exposure is attributed to holding more stocks with high dividend or buyback yields. And low volatility exposure is rooted in stocks that have a lower standard deviation of returns. The strategy's parent organization earns the firm an Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

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 ActiveBeta® Japan Eq ETF earns an Average Process Pillar rating. 

The primary contributor to 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. The process is limited by the fund's weak long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category average, which suggests that the process has struggled over that period.

 This strategy tends to hold larger, deeper value companies compared with its average peer in the Japan Stock Morningstar Category. Analyzing additional factors, this strategy has continually displayed high-yield exposure compared with Morningstar Category peers during recent years, holding more companies returning cash to shareholders via dividends or buybacks. Stocks with high yields can be more stable, mature companies, but at times extreme market pressure or fundamental deterioration may prompt them to cut their dividends, which tends to hurt stock performance. Different from its historical appetite, however, the strategy was less exposed to the Yield factor compared with Morningstar Category peers in the most recent month. The managers have also shown an underweight risk tilt, demonstrated by lower volatility exposure over peers in recent years. These companies have historically been a valuable ballast to steady portfolio returns during market downturns. Compared with category peers, however, the strategy had more exposure to the Volatility factor in the most recent month. Additionally, this strategy has tilted toward illiquid stocks during these years, evidenced by holding companies with relatively lower trading volumes than peers. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. In recent months, the strategy also had less Liquidity factor exposure than its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in healthcare by 3.0 percentage points in terms of assets compared with the category average, and its technology allocation is similar to the category. The sectors with low exposure compared to category peers are basic materials and industrials, with basic materials underweighting the average portfolio by 4.1 percentage points of assets and industrials similar to the average. The portfolio is composed of 220 holdings and is about as top-heavy as the category average, with 22.5% of assets in the top 10 holdings. And finally, in terms of portfolio turnover, on a year-over-year basis, 17% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

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 20 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, demonstrating their potential 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.

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 ActiveBeta Japan Equity ETF

GSJY tracks an index of Japanese large- and mid-cap equities, with equal weights to each of 4 factor buckets and stocks within each bucket weighted by a factor score.

GSJY tracks an index of Japanese large- and mid-cap equities comprising four sub-indices: value, momentum, quality and low volatility. The index uses multiple factors to pick stocks, and each sub-index receives equal weight.

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Japan's equity benchmark, the Nikkei 225 Index, has been on a tear in 2024, eclipsing its previous high set back in 1989. As of early April, the index is hovering near 40,000. Solid economic growth, a revamp in the country's tax-free stock investment program and corporate governance reform have helped propel Japanese equities to record highs.

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The Bank of Japan is set to normalise monetary policy when certain conditions are met, namely inflation, positive real cash earnings, and a recovery in domestic demand growth. We expect the window for normalisation to open from July for about a year before inflation begins to fall below 2%.

The Bank of Japan's New Path Ahead

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The Bank of Japan's historic move to end the country's negative interest rate policy after nearly two decades triggered a jolt upward to new all-time highs for gold against the yen. The BoJ announced it will now hold short-term rates at a still-accommodative 0% to 0.1% and is getting rid of its yield curve control program and ETF purchases.

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Japan's private sector picked up growth momentum into the end of the first quarter, according to flash PMI data.

Japan Flash PMI Signals Accelerating Growth Momentum And Rising Inflation In March 2024

Kazuo Ueda becomes Governor of the Bank of Japan, continuing the loose monetary policies implemented by his predecessor. The BOJ raises short rates from -0.1% to 0.1%, becoming the last central bank to exit a Negative Interest Rate Policy.

End Of An Era - Bank of Japan Reverses Negative Interest Rate Policy

The Bank of Japan raised interest rates for the first time since 2007 and has eliminated the yield curve control framework. According to the central bank, the virtuous cycle between wages and prices was assessed to have come into sight, bringing the 2% inflation target within a sustainable and stable possibility by the end of fiscal year 2025.

Flash Insights: Bank of Japan - A 'Watchful' Adjustment

The Bank of Japan has now ended decades of unconventional and aggressive monetary easing. Strong wage negotiation results played a crucial role in today's move.

Bank of Japan Pivot Proves Underwhelming For Markets

Japan's private sector activity broadly stagnated in February according to flash PMI data, attributed to a combination of slowing services activity growth and an acceleration in manufacturing output contraction. A sharper decline in goods new orders, underpinned by sluggish demand conditions, also largely offset improved demand for services.

Flash PMI Signal Cooling Inflation And Stagnating Private Sector Activity In Japan

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While the China macro story of ongoing transition is a headwind to the rest of Asia, there is more to the region's economic health than this.

Asia-Pacific Is Not Just China

Japan's economic growth is projected to decelerate to 0.9% in 2024 and 0.8% in 2025. Government policies have helped the recovery of Japanese stocks and will continue to be a positive factor going forward.

The Rally In Japanese Stocks

Japan's Private Sector Returns To Growth At Start Of 2024, While Price Pressures Ease

The Bank of Japan stood pat on monetary policy today as widely expected. But the market is now paying attention to a more positive tone on the wage and inflation outlook, as well as an upgrade to the FY2024 inflation outlook which lays the groundwork for policy normalisation.

Bank of Japan Opens The Door To Ending Negative Rates, But Timing Uncertainty Remains

Japan's private sector growth ground to a halt in November according to the latest flash PMI data, which is based on about 85%-90% of total PMI survey responses each month. This was mainly attributed to a sharper fall in manufacturing output as service activity expanded at a slightly faster pace in the penultimate month of the year.

Japan Flash PMI Eases To 50.0 To Signal Stalling Private Sector Activity In November

The Japanese stock market is having itself a hot minute. The Nikkei 225 index, a benchmark for Japanese equities, is up nearly 30 percent so far this year.

Japan, Still The Outlier After All These Years

Things were looking tough for the BoJ as recently as this summer, when the country's core CPI bolted north of 4%, far beyond the 2% inflation target that major central banks view as ideal. The Bank of Japan is being reactive to an inflation threat that may very well be in the rearview mirror.

Declining PPIs Perpetuate Japan's TINA Trade

The debate over the future of Japan continues. Because of its small footprint, we often forget the oversized role Japan plays in the global economy.

Japan's Future Remains An Issue Of Debate

October's flash PMI data revealed that Japan's private sector economy concluded the eight-month growth streak that commenced in January 2023. This was attributed primarily to a sharper fall in manufacturing production, though services activity growth also slowed to the weakest in the year-to-date.

Japan's Flash PMI Points To Stalling Private Sector Economy At Start Of Fourth Quarter

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The region is likely to see faster disinflation, but prospects for growth in coming years are dimming. Strong consumer spending has supported growth in Asia's three largest economies this year, but there are already signs that the region's recovery may be running out of steam.

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The IMF, the World Bank, and the United Nations all rank China and Japan as the second and third largest economies on the planet. More of what is occurring in the markets should reflect what is happening in China and Japan which are strongly linked economically.

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It is disappointing that labour cash earnings were weaker than expected in Japan, but consumption held up relatively well. Meanwhile, due to the recent spike in market rates and high inflation, the Bank of Japan is expected to change its YCC policy and forward guidance at its October meeting.

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Japanese stocks have outperformed global equities by a wide margin this year. Is this a false dawn or can inflation continue to breathe life into the market?

Japan Equities: Inflation May Be Just What The Doctor Ordered

Japan's private sector economy continued to grow in September, extending the sequence of expansion that commenced at the start of 2023. Slower service sector growth, attributed in part to a renewed decline in new business from abroad, and a quicker fall in manufacturing output underpinned the latest slowdown.

Japan's Growth Momentum And Inflation Pressures Ease In September

Japan's Nikkei 225 eclipsed 33,000 for the first time in 33 years, and the significant rally has attracted major investor interest. Global portfolio managers are increasingly bullish on Japan, and they are allocating more cash to this rising market.

The Sun Shines On Japanese Stocks, Anticipating Key Events To Finish The First Half

Despite a slowdown in growth momentum from May, as signalled by the latest June flash PMI data for Japan, a solid quarter of growth is expected for Q2 2023. This may well exceed the strong official GDP reading recorded in Q1, with a service sector expansion primarily supporting growth while manufacturing performance lagged.

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The BoJ has unanimously decided to maintain its ultra-easing monetary policy. It is looking for clearer signs of sustainable inflation growth.

Bank Of Japan Keeps Policy Settings Unchanged - For Now

News for Goldman Sachs ActiveBeta Japan Equity ETF ETF (GSJY)