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Goldman's (GS) Credit-Portfolio Trades Benefit From ETF Boom

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Per a Bloomberg article, The Goldman Sachs Group (GS - Free Report) seeks to exploit its position in exchange-traded bond funds market. At the same time, other wall street competitors are building their own strategies to capture market share.

Goldman acts as an authorized participant whereby it supplies securities underpinning the funds. Furthermore, the bank is said to have boosted the volume of credit portfolio trades which include buying or selling securities of large scale through ETFs to about $20 billion this year on a global level, up from $7 billion in 2017.

Authorized participants obtain underlying assets for the funds and control the supply of shares in order to provide liquidity to the bond ETF market. This allows them to trade large blocks of bonds at a cheaper cost compared to trading the securities separately.

Further, participants can obtain bonds for customers by purchasing shares in ETF and then redeeming them for the underlying notes. If a client wants to sell a portfolio, the bank buys the bonds and hands them to the ETF issuer which uses them to back new shares.

Wall street biggies such as JPMorgan Chase (JPM - Free Report) and Citigroup (C - Free Report) are also making strategies to compete in the same space. Per people familiar with the matter, JPMorgan hired Stephen Waugh, former BlueCrest Capital Management money manager last month to take over initiatives aimed at expanding trading portfolios.

Goldman’s focus on new growth opportunities through several strategic investments, including the digital consumer lending platform, will likely aid in overall development. However, its involvement in a number of investigations and lawsuits from investors and regulators remains a headwind.

The stock has lost 10.8% year to date compared with the industry’s decline of 3.3%.

Currently, Goldman Sachs carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked stock in the same space worth considering is Evercore (EVR - Free Report) . The stock has witnessed 2.7% upward estimate revision for current-year earnings in the last 60 days. Also, the company’s shares have risen 51.6% in the past year. It sports a Zacks Rank of 1.

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