Goldman Sachs Asset Management has launched a broad emerging markets government bond ETF that is charging zero management fees during its first year of operation.The ETF comes with zero management fees until February 2023.
The Goldman Sachs Access Emerging Markets USD Bond ETF (GEMD US) has been listed on Cboe BZX Exchange.
While the fund’s gross expense ratio is 0.45%, its net expense ratio is currently 0.00% due to a fee waiver in place until February 2023.
The ETF is linked to the FTSE Goldman Sachs Emerging Markets USD Bond Index which provides broad exposure to emerging market bonds while excluding countries with relatively weak governance, high inflation growth, and unfavorable import measures.
The index is constructed from the FTSE Emerging Markets Broad Bond Index universe which covers both investment-grade and high yield debt that has been issued in US dollars by sovereign and quasi-sovereign entities domiciled in emerging markets. Eligible issues must have more than one year remaining until maturity and a minimum issue size of $500 million.
The countries in the universe are first ranked according to the World Bank’s Worldwide Governance Indicators which cover six dimensions of governance: voice and accountability, political stability and the absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption. Countries ranked in the bottom 10% are excluded.
The universe is then ranked again by a composite factor derived from two equally weighted fundamental indicators provided by the International Monetary Fund: a trade indicator based on the year-over-year difference in the import coverage ratio, and a cost of goods and services indicator based on the absolute change in inflation. Countries ranked in the bottom 5% are also removed.
The remaining universe is then divided into two maturity buckets: bonds with remaining maturities between one and seven years and bonds with more than seven years remaining. Within each maturity bucket, constituents are weighted by market value while capping the weight of any single country at 5% and adjusting the weights of the maturity buckets to match the weighted average effective duration of the parent universe.
The ETF will compete with several USD emerging market bond ETFs currently on the market. The largest of these is the iShares JP Morgan USD Emerging Markets Bond ETF (EMB US) which houses $16.9bn and comes with an expense ratio of 0.39%.