Goldman Sachs' Alexandra Lawson on Fixed Income ETFs

Despite the amount of money that was being moved out of fixed income mutual funds, fixed income ETFs thrived in 2022. Fixed income ETFs saw over $200 billion in new money. Lawson explained, “It’s been the culmination of a trend that’s been happening for a few years, and we’ve just seen much wider adoption last year.” She sees a confluence of factors influencing this, including the greater variety of fixed income ETFs now available, as well as the institutional and retail popularity of ETFs. “When inflation is driving asset values, you tend to get markets that are very correlated,” Lawson noted, adding that, despite the painful period of time, investors have had ample opportunity for tax-loss harvesting.

Lawson also said she expected a less aggressive Fed in 2023. “Our estimate for this year is another 75 basis points,” she shared. This is likely to restore value in fixed income, with yields moving from 2% to 5%. “We’re more optimistic for fixed income in this coming year than we were last year.”

Goldman Sachs has eight active ETFs created with FTSE Russell delivered in a passive framework. The Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB) identifies and eliminates the bottom 10% of issuers. “That’s not to say it’s a ratings screen,” she added, saying that lower-rated funds that are improving can be included over higher-rated funds that are overleveraged.

Another fund in the company’s lineup is the Goldman Sachs Access High Yield Corporate Bond ETF (GHYB), which also looks at leverage and interest coverage to screen out the bottom 15%. “Bonds are very different than stocks, there’s limited upside. We’re not looking to find the winners, but to screen out the losers.”