The Bottom Line: Goldman Sachs makes news with two sustainable initiatives, the launch of robo-advisor Marcus Invest and issuance of an $800 million sustainability bond.
Goldman Sachs makes news with sustainable initiatives
Within the previous ten days or so, Goldman Sachs Group, Inc. made the news with two noteworthy sustainable initiatives, the launch of a digital investment management platform that includes an impact investing option and the issuance of an $800 million sustainability bond intended to accelerate climate transition and advance inclusive economic growth across nine core impact themes that underpin Goldman Sachs’ sustainable finance commitment with a target to deploy $750 billion across climate transition and inclusive growth by 2030. This research notes focuses on the Goldman digital investing platform.
Goldman’s Marcus digital investing platform includes an impact option with limited impact
Goldman is the latest firm to offer a robo-advisor investing platform. The firm this week introduced a digital investing platform under the Marcus brand that was launched in 2016 as part of the financial services firm’s effort to diversify revenue and funding sources by offering savings accounts and personal loans to retail customers. The Marcus Invest Account is available to investors with a minimum investment of $1000. The Marcus Invest platform, also requiring a minimum investment of $1,000, is easy to use and navigate. It assembles diversified portfolios for individual investment and retirement accounts that are created using low cost stock and bond index ETFs selected on the basis of an investor’s risk tolerance, investment time horizon and three strategy preferences. Once profiled, investors can choose from one of three portfolio strategies. These include Goldman Sachs Core, Goldman Sachs Impact and Goldman Sachs Smart Beta.
The Goldman Sachs Impact portfolio is designed for “people who want to support sustainable business practices and avoid environmental and social harm while tracking market benchmarks.” It is also noted that coal, tobacco and firearms are excluded. Portfolio allocations will vary based on individual investors’ risk tolerance and investment time horizon but regardless of allocation, the portfolios are constructed by relying on a preselected number of stock and bond ETFs, some that actually consist of conventional funds that don’t employ a sustainable investing approach. In total, the platform relies on 10 ETFs, including ETFs offered by BlackRock, State Street Global Advisors and Vanguard. Four of the ten preselected ETF investment options pursue a sustainable investing approach while six do not. Refer to Table 1.
Portfolio allocations will vary based on risk tolerance and investment time horizon, however, conservative investors with stock and bond allocations of 60/40, for example, can end up with portfolios that are dominated by ETFs that don’t qualify as sustainable investment vehicles. Moreover, the Marcus Invest site notes that ETF expenses range from 0.11% to 0.19% when in fact the expense ratios levied by these 10 funds range from a low of 7 bps to a high of 40 bps and the average arithmetic expense ratio is 0.183%. Overall average market weighted ETF expenses will vary depending on each investor’s risk tolerance and investment time horizon. In addition to ETF expenses borne by investors, Goldman’s Marcus charges a portfolio fee of 0.35%.
| ETF Fund | Expense Ratio (%) | Sustainable Investing Approach |
| iShares ESG Aware MSCI USA ETF (ESGU) | 0.15 | ESG Integration-Mixed |
| iShares ESG Aware MSCI EAFE ETF (ESGD) | 0.20 | ESG Integration-Mixed |
| iShares ESG Aware MSCI USA Small-Cap ETF (ESML) | 0.17 | ESG Integration-Mixed |
| iShares ESG Aware MSCI Emerging Markets ETF (ESGE) | 0.25 | ESG Integration-Mixed |
| Vanguard Real Estate Index Fund ETF (VNQ) | 0.12 | Not explicitly adopted |
| Vanguard Global ex- US Real Estate Index Fund ETF (VNQI) | 0.12 | Not explicitly adopted |
| iShares 1-3 Year Treasury Bond ETF (SHY) | 0.15 | Not explicitly adopted |
| SPDR Short Term Muni Bond ETF (SHM) | 0.20 | Not explicitly adopted |
| iShares National Muni Bond ETF (MUB) | 0.07 | Not explicitly adopted |
| SPDR Barclays High Yield ETF (JNK) | 0.40 | Not explicitly adopted |
| Cash | NA | Cash investment option not specified |
| Average* | 0.183 |
Finally, while the website notes that the portfolio avoids sectors like coal, tobacco and firearms, a review of the SPDR Barclays High Yield ETF, a non-sustainable fund, indicates that there may be at least one tobacco company holding as of February 18, 2021. This is a positions in Vector Group LTD, a Delaware corporation that operates as a holding company and is engaged principally in two business segments, including the manufacture and sale of cigarettes in the United States through the Liggett Group LLC, and Vector Tobacco Inc., two subsidiary companies that contributed 58.6% of the holding company’s 2019 revenues.
