Goldman Sachs Talks AI Investing Regime Change, Active ETFs

What does it mean to invest in artificial intelligence (AI)? Goldman Sachs leaders joined VettaFi for a recent webinar to explore how leadership among AI investing opportunities may be shifting. The segment titled The AI Infrastructure Buildout: Where Investors May Find the Next Opportunities with Active ETFs emphasized how active management amid current market broadening may help meet that shifting AI moment.Key Takeaways S&P 500 dispersion has risen significantly, with dispersion north of 70%. This shift has occurred amid growing market uncertainty and a shifting AI opportunity set. Active ETFs, which have increasingly outperformed their benchmarks, can help investors adapt. The webcast, hosted by VettaFi Head of Research Todd Rosenbluth and VettaFi Research Analyst Ben Hernandez, invited thoughts from Goldman Sachs Asset Management’s (GSAM) Katherine Bordlemay and Brook Dane. Both weighed in on AI, active ETFs, and broadening market leadership. In Bordlemay’s view, she hoped viewers would come away with three main points. Firstly, she said, a new era defined by AI and disruption emphasizes the importance of active management. Second, she noted that while innovation is the biggest wealth-generation opportunity out there, it also threatens to disrupt countless businesses. Finally, she explained that GSAM offers active ETF solutions to get the most out of this landscape, specifically where market broadening and distortion are clearly visible in S&P 500 performance dispersion.Navigating the Evolving AI Landscape“We feel that we are really in a new paradigm, a new world in this AI era,” she said. “Rates are not low anymore. Disruption is getting even more profound with AI and geopolitics. We’re seeing just incredibly wide stock-level dispersion. Right now we’re looking at (S&P 500) dispersion north of 70%. This is the highest we’ve seen since 2009.” Amid that shift, Bordlemay explained, active managers have increasingly outperformed their benchmarks. Where in the last five years some 20% of active managers beat their large-cap growth benchmarks, the “current era” has seen almost 60% do so, she said. Combine that with opportunities and disruption in a shifting AI market regime, and active ETFs could have further upside. Dane reminded viewers of three main buckets to understand in the space, from the big GPU semiconductors to ASIC semiconductors and finally CPU chips. With the opportunities in AI enabling technologies evolving, Dane said, there are other areas to watch for. Where memory was a key bottleneck earlier this year, optical networking has now become an area to track. See more: How Income ETF Duo GPIQ & GPIX Can Meet Client NeedsAI Investing and the Case for Active Tech ETFsCybersecurity firms stand to benefit from advances in AI. One example is a trend perhaps encapsulated by the Hugging Face incident. More broadly, he expects the big headline capital expenditure that has been a hallmark of AI advancement to continue. “We think it’s just getting started. But importantly within this, investors need to be thinking about where those dollars are going,” Dane said. “We think it’s actually a very small amount of spending relative to the cashflow profiles of companies like Nvidia (NVDA). And then with the CapEx side of things, yes, debt is going to be used to finance some of these vehicles, but only because it’s more attractive than spending equity as they try and take advantage of this big opportunity.” Responding to a question from Rosenbluth about whether fundamentals are still strong for names like NVDA, Dane pointed to the firm’s recent earnings call. NVDA and Snowflake (SNOW), he said, both shared some very positive growth projections. Amid all that, however, investors should be mindful of the increasingly diverse names offering upside. “It would be a big mistake to assume that if you just own the four or five perceived winners today in the market, that that’s going to drive an acceptable total return over the next 10 years,” Dane noted. “I think investors need to be really focused on where things are shifting and changing.”How GTEK Leverages the 'Four Ts' to Drive ReturnsThe duo pointed to active ETFs like those from GSAM to help take advantage of this shifting landscape. Bordlemay underlined the “four Ts” — total expense ratio, tax efficiency, transparency, and trading — as important active ETF advantages. Together, these factors reinforce the case for funds like the Goldman Sachs Future Tech Leaders Equity ETF (GTEK B-). GTEK charges a 75 basis point fee to actively invest in tech companies believed to be driving innovation. The strategy has returned 42.1% YTD, according to ETF Database data. The fund represents the kind of bottom-up, active ETF that is built to benefit from this landscape. Looking ahead, GSAM’s overall active ETF line-up may be a key suite to watch for those wanting deeper exposure to AI investing. For more news, information, and strategy, visit the Future ETFs Content Hub.