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Goldman Sachs: A Deeper Look at the Performance

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The popularity of index investing keeps gaining steam. Entering 2022, more than 2,300 different index mutual funds and passively managed exchange-traded funds were being sold in the U.S., according to independent investment researcher Morningstar Inc. These accounted for slightly more than $12.5 trillion in combined assets.

But that's just part of the story. As we've chronicled over the years in our Deeper Look series, active managers are failing to outperform most of their passive investing rivals. Now, as part of IFA's ongoing analysis of how active managers at major fund companies are doing compared to their indexes, we're putting Goldman Sachs' mutual funds through our microscope.

The publicly traded investment banker, which was founded in 1869, is headquartered in New York. It employs some 40,000 professionals around the world and operates in financial services across investment banking, securities, investment management and consumer banking as well as institutional client services.

With more than $2.5 trillion of assets under supervision heading into 2022, Morningstar estimates that about 40% of Goldman Sachs' asset management business is related to fixed-income investment strategies. Equities (25%), liquidity products (25%) and alternatives (10%) comprise the rest.1

Many investors are familiar with Goldman Sachs through their company sponsored retirement plans. Industry trade magazine Pensions & Investments has ranked Goldman Sachs Asset Management as one of the largest U.S. players in so-called outsourced investment management programs used by 401(k) and 403(b) retirement plan sponsors.

After the bank announced in early 2022 it was buying robo advisor NextCapital Group, Bloomberg reported Goldman Sachs' asset management unit managed about $350 billion in assets for defined-benefit and defined-contribution plans.2 

As mentioned above, we've taken a deeper look at the performance of several other large mutual fund companies in the past. One universal conclusion: Active fund managers have failed to deliver on the value proposition they profess, which is to reliably outperform a risk-comparable benchmark.

Controlling for Survivorship Bias

It's important for investors to understand the idea of survivorship bias. While there are 71 active mutual funds with five or more years of performance-related data currently offered by Goldman Sachs, it doesn't necessarily mean these are the only strategies this company has ever managed. In fact, there are 45 mutual funds with five-plus years of data that no longer exist. This can be for a variety of reasons, including poor performance or the fact that they were merged with another fund. We will show what their aggregate performance looks like shortly.

Fees & Expenses

Let's next examine the costs associated with Goldman Sachs' surviving 71 strategies. It should go without saying that if investors are paying a premium for investment "expertise," then they should be receiving above average results consistently over time. The alternative would be to simply accept a market's return, less a significantly lower fee, via an index fund.

The costs we examine include expense ratios, sales loads — front-end (A), back-end (B) and level (C) — as well as 12b-1 marketing fees. These are considered the "hard" costs that investors incur. Prospectuses, however, do not reflect the trading costs associated with mutual funds.

Commissions and market impact costs are real expenses associated with implementing a particular investment strategy and can vary depending on the frequency and size of the trades executed by portfolio managers.

We can estimate the costs associated with an investment strategy by looking at its annual turnover ratio. For example, a turnover ratio of 100% means that the portfolio manager turns over the entire portfolio in one year. This is considered a very active approach, and investors holding these funds in taxable accounts will likely incur a higher exposure to tax liabilities, such as short- and long-term capital gains distributions, than those incurred by passively managed funds.

The table below details the hard costs as well as the turnover ratio for all 71 surviving active funds offered by Goldman Sachs that have at least five years of complete performance history. You can search this page for a symbol or name by using Control F in Windows or Command F on a Mac. Then, click the link to see the Alpha Chart. Also, remember that this is what is considered an in-sample test; the next level of analysis is to do an out-of-sample test (for more information see here).

Fund Name Ticker Turnover Ratio % Prospectus Net Expense Ratio 12b-1 Fee Max Front Load Global Broad Category Group Global Category
Goldman Sachs Tactical Tilt OverlayInstl TTIFX 60.00 0.81     Allocation Flexible Allocation
Goldman Sachs Income Builder A GSBFX 47.00 0.81 0.25 5.50 Allocation Cautious Allocation
Goldman Sachs Balanced Strategy Instl GIPIX 9.00 0.69     Allocation Moderate Allocation
Goldman Sachs Growth Strategy Instl GGSIX 5.00 0.59     Allocation Aggressive Allocation
Goldman Sachs Growth & Inc Strat Instl GOIIX 8.00 0.63     Allocation Moderate Allocation
Goldman Sachs Satellite Strategies Instl GXSIX 33.00 1.01     Allocation Moderate Allocation
Goldman Sachs Managed Futs Strat Instl GMSSX 529.00 1.23     Alternative Alternative Miscellaneous
Goldman Sachs Multi-Manager Alts Instl GSMMX 269.00 1.87     Alternative Multialternative
Goldman Sachs Absolute Ret Trckr Instl GJRTX 193.00 0.72     Alternative Multialternative
Goldman Sachs Commodity Strategy Instl GCCIX 83.00 0.59     Commodities Commodities Broad Basket
Goldman Sachs MLP Energy Infras Instl GMLPX 166.00 2.23     Equity Energy Sector Equity
Goldman Sachs Small/Mid Cap Value Instl GSMVX 78.00 0.84 0.00   Equity US Equity Mid Cap
Goldman Sachs Focused Value R6 GFVUX 78.00 0.72 0.00   Equity US Equity Large Cap Blend
Goldman Sachs Global Infras R6 GGIJX 57.00 0.98     Equity Infrastructure Sector Equity
Goldman Sachs Global Rl Estt Secs R6 GARVX 75.00 0.96     Equity Real Estate Sector Equity
Goldman Sachs GQG Ptnrs Intl Opps Instl GSIMX 94.00 0.79     Equity Global Equity Large Cap
Goldman Sachs Mid Cap Value Instl GSMCX 66.00 0.84 0.00   Equity US Equity Mid Cap
Goldman Sachs Small Cap Value A GSSMX 64.00 1.28 0.25 5.50 Equity US Equity Small Cap
Goldman Sachs US Equity Insights Svc GSESX 214.00 1.06 0.25   Equity US Equity Large Cap Blend
Goldman Sachs Capital Growth A GSCGX 46.00 1.04 0.25 5.50 Equity US Equity Large Cap Blend
Goldman Sachs International Eq ESG Svc GSISX 39.00 1.36 0.25   Equity Global Equity Large Cap
Goldman Sachs Equity Income A GSGRX 44.00 1.04 0.25 5.50 Equity US Equity Large Cap Value
Goldman Sachs China Equity A GSAGX 46.00 1.45 0.25 5.50 Equity Asia ex-Japan Equity
Goldman Sachs Real Estate Securities Ins GREIX 57.00 0.91     Equity Real Estate Sector Equity
Goldman Sachs Small Cap Eq Insghts Instl GCSIX 165.00 0.84 0.00   Equity US Equity Small Cap
Goldman Sachs Technology Opps Inst GITIX 41.00 0.95 0.00   Equity Technology Sector Equity
Goldman Sachs Strategic Growth Instl GSTIX 31.00 0.75 0.00   Equity US Equity Large Cap Growth
Goldman Sachs Growth Opportunities Instl GGOIX 57.00 0.90 0.00   Equity US Equity Mid Cap
Goldman Sachs Intl Eq Insghts Instl GCIIX 164.00 0.79     Equity Global Equity Large Cap
Goldman Sachs Large Cap Value Instl GSLIX 53.00 0.73 0.00   Equity US Equity Large Cap Value
Goldman Sachs Dynamic Global Eq Instl GAPIX 4.00 0.55     Equity Global Equity Large Cap
Goldman Sachs Emerging Markets Eq Instl GEMIX 52.00 1.07     Equity Global Emerging Markets Equity
Goldman Sachs US Tax-Managed Eq Instl GCTIX 177.00 0.74     Equity US Equity Large Cap Blend
Goldman Sachs Large Cap Gr Insghts Instl GCGIX 214.00 0.54 0.00   Equity US Equity Large Cap Growth
Goldman Sachs Large Cp Val Insghts Instl GCVIX 215.00 0.56 0.00   Equity US Equity Large Cap Value
Goldman Sachs Concentrated Growth Instl GCRIX 37.00 0.80 0.00   Equity US Equity Large Cap Growth
Goldman Sachs Rising Dividend Gr A GSRAX 38.00 1.03 0.25 5.50 Equity US Equity Large Cap Blend
Goldman Sachs Small/Mid Cap Growth Instl GSMYX 60.00 0.89 0.00   Equity US Equity Mid Cap
Goldman Sachs US Eq Div and Prem Instl GSPKX 39.00 0.71     Equity US Equity Large Cap Blend
Goldman Sachs Intl Real Estate Sec Instl GIRIX 55.00 0.99     Equity Real Estate Sector Equity
Goldman Sachs International Eq Inc Instl GSIKX 28.00 0.85     Equity Global Equity Large Cap
Goldman Sachs Small Cp Val Insghts Instl GSITX 187.00 0.84 0.00   Equity US Equity Small Cap
Goldman Sachs Small Cap Gr Insghts Instl GSIOX 170.00 0.84 0.00   Equity US Equity Small Cap
Goldman Sachs Em Mkts Eq Insghts Intl GERIX 189.00 1.09     Equity Global Emerging Markets Equity
Goldman Sachs Intl Sm Cp Insghts Instl GICIX 185.00 0.87     Equity Global Equity Mid/Small Cap
Goldman Sachs Enhanced Div Gbl Eq Instl GIDGX 16.00 0.97     Equity Global Equity Large Cap
Goldman Sachs Tax-Advntgd Gbl Eq Instl TIGGX 16.00 0.97     Equity US Equity Large Cap Blend
Goldman Sachs Intl Eq Div & Prem Instl GIDHX 34.00 0.89     Equity Global Equity Large Cap
Goldman Sachs International T/M Eq Instl GHTMX 177.00 0.90     Equity Global Equity Large Cap
Goldman Sachs Flexible Cap Institutional GILLX 43.00 0.59 0.00   Equity US Equity Large Cap Growth
Goldman Sachs U.S. Equity ESG Ins GINGX 31.00 0.67 0.00   Equity US Equity Large Cap Blend
Goldman Sachs Short Duration Bond Instl GDFIX 253.00 0.43     Fixed Income US Fixed Income
Goldman Sachs Long Shrt Crdt Strats Inst GSAWX 112.00 1.13     Fixed Income Fixed Income Miscellaneous
Goldman Sachs Short-Term Cnsrv Inc Instl GPPIX 79.00 0.24     Fixed Income US Fixed Income
Goldman Sachs Short Dur T/F Instl GSDUX 20.00 0.38     Fixed Income US Municipal Fixed Income
Goldman Sachs Global Core Fxd Inc Svc GGISX 522.00 1.10 0.25   Fixed Income Global Fixed Income
Goldman Sachs Short Dur Govt Instl GSTGX 566.00 0.49     Fixed Income US Fixed Income
Goldman Sachs Dynamic Municipal Inc A GSMIX 6.00 0.72 0.25 3.75 Fixed Income US Municipal Fixed Income
Goldman Sachs Government Income A GSGOX 820.00 0.85 0.25 3.75 Fixed Income US Fixed Income
Goldman Sachs High Yield Instl GSHIX 71.00 0.73     Fixed Income US Fixed Income
Goldman Sachs High Yield Muni Instl GHYIX 7.00 0.54     Fixed Income US Municipal Fixed Income
Goldman Sachs Enhanced Income Instl GEIIX 58.00 0.35     Fixed Income US Fixed Income
Goldman Sachs Core Fixed Income Instl GSFIX 575.00 0.38     Fixed Income US Fixed Income
Goldman Sachs Emerging Markets Dbt Instl GSDIX 79.00 0.86     Fixed Income Emerging Markets Fixed Income
Goldman Sachs US Mortgages SAI GSUPX 1,027.00 0.44     Fixed Income US Fixed Income
Goldman Sachs Investment Grd Crdt SAI GSCPX 69.00 0.37     Fixed Income US Fixed Income
Goldman Sachs Bond Institutional GSNIX 690.00 0.45     Fixed Income US Fixed Income
Goldman Sachs Infl Protected Secs Instl GSIPX 51.00 0.34     Fixed Income US Fixed Income
Goldman Sachs Local Emerg Mkts Dbt Instl GIMDX 111.00 0.91     Fixed Income Emerging Markets Fixed Income
Goldman Sachs High Yield Fl Rate Instl GSFRX 53.00 0.75     Fixed Income US Fixed Income
Goldman Sachs Strategic Income Instl GSZIX 722.00 0.69     Fixed Income Fixed Income Miscellaneous

On average, an investor who utilized a surviving active equity mutual fund strategy from Goldman Sachs experienced a 0.92% expense ratio. Similarly, an investor who utilized a bond strategy from Goldman Sachs experienced a nearly 0.61% expense ratio. (Target-date retirement mutual funds, which follow varying glide paths, aren't included in this study.)

These types of expenses can have a substantial impact on an investor's overall accumulated wealth if they are not backed by superior performance. The average turnover ratios for equity and bond strategies from Goldman Sachs were 87.85% and 294.55%, respectively. This implies an average holding period of 4.07 to 13.66 months.

In general, we find that active managers at Goldman Sachs have made investment decisions based on relatively short-term outlooks, which means they've tended to trade more frequently in the past than a typical rival index fund. Again, this is a cost that is not itemized to the investor but is definitely embedded in the overall performance.

In contrast, most index funds have very long holding periods — decades, in fact. Such relatively longer holding periods, in effect, serves to help index fund investors lower exposure to the market's random noise that accompanies short-term portfolio movements. Again, turnover is a cost that is not itemized to the investor but is definitely embedded in a portfolio's overall performance.

Performance Analysis

The next question we address is whether investors can expect superior performance in exchange for the higher costs associated with Goldman Sachs' implementation of active management. We compared each of its 116 strategies with five or more years against the Morningstar-assigned benchmark to see just how well these active managers delivered on any perceived value proposition. We also used the oldest share class of each fund, which sometimes were older than its assigned benchmark. In these cases, comparisons could only be made for the length of time that the benchmark had data available. 

We have included alpha charts for each of Goldman Sachs' current active mutual fund strategies at the bottom of this article. Here is what we found:

  • 77.59% (90 of 116 funds) have underperformed their respective benchmarks or did not survive the period since inception.

  • 22.41% (26 of 116 funds) have outperformed their respective benchmarks since inception, having delivered a positive alpha.

Here's the real kicker, however:

  • 0.86% (1 of 116 funds) have outperformed their respective benchmarks consistently enough since inception to provide 97.5% confidence that such outperformance will persist as opposed to being based on random outcomes.

So, relatively few — less than 1% — of Goldman Sachs' active mutual fund managers were able to deliver statistically significant benchmark outperformance. The inclusion of the statistical significance of alpha is key to this exercise, as it indicates which outcomes are due to a skill that is likely to repeat and those that are more likely due to a random outcome.

As a result, this study shows that a majority of funds offered by Goldman Sachs have not outperformed Morningstar-assigned benchmarks. The inclusion of statistical significance is key to this exercise as it indicates an outcome that's attributable to skill and potentially repeatable. 

Regression Analysis

How we define or choose a benchmark is extremely important. If we relied solely on commercial indices assigned by Morningstar, then we may form a false conclusion that Goldman Sachs has the "secret sauce" as active managers.

Since Morningstar is limited in terms of trying to fit the best commercial benchmark with each fund in existence, there is of course going to be some error in terms of matching up proper characteristics such as average market capitalization or average price-to-earnings ratio.

A better way of controlling these possible discrepancies is to run multiple regressions where we account for the known dimensions (betas) of expected return in the U.S. (i.e., market, size, relative price, etc.).

For example, if we were to look at all of the U.S. based strategies from Goldman Sachs that have been around for the last 10 years, we could run multiple regressions to see what their alpha looks like — once we control for the multiple betas that we know are being systematically priced into the overall market.

Besides using common mathematical concepts of regression analysis, our methodology for this study incorporates a standard point of demarcation for determining the number of years reviewed. Given that many active families have few survivors with records spanning a decade or more, we use this number (10) as a basic threshold for comparing active managers as part of our ongoing Deeper Look series. 

The chart below displays the average alpha and standard deviation of that alpha for the past 10 years through 2021. Screening criteria include funds with holdings of 90% or greater in U.S. equities and uses the oldest available share classes.

As shown above, seven of the mutual funds studied had positive excess returns over the stated benchmarks. At the same time, no actively managed funds produced a statistically significant level of alpha, based on a t-stat of 2.0 or greater. Why is this important? Given the lower costs associated with index funds, we'd have greater confidence of experiencing a more desirable result using a passively managed portfolio of funds compared to one constructed around more expensive actively managed funds. (A review of how to calculate a fund's t-stat can be found at the end — right after the presentations of the individual alpha charts for each Goldman Sachs fund included in this study.)

Conclusion

Like many of the other largest financial institutions, a deep analysis into the performance of Goldman Sachs has yielded a not so surprising result: Active management is likely to fail many investors. We believe this is due to market efficiency, costs and increased competition in the financial services sector.

As we always like to remind investors, a more reliable investment strategy for capturing the returns of global markets is to buy, hold and rebalance a globally diversified portfolio of index funds.

Below are the individual alpha charts for the existing Goldman Sachs funds that have five years or more of a track record.

 


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Here is a calculator to determine the t-stat. Don't trust an alpha or average return without one.

The Figure below shows the formula to calculate the number of years needed for a t-stat of 2. We first determine the excess return over a benchmark (the alpha) then determine the regularity of the excess returns by calculating the standard deviation of those returns. Based on these two numbers, we can then calculate how many years we need (sample size) to support the manager's claim of skill.




Footnotes:

1.) Morningstar, First Quarter 2022 Review, April 14, 2022. 

2.) Bloomberg, "Goldman Buys Robo-Advisor NextCapital in Retirement Expansion," March 29, 2022. 


This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal. Performance may contain both live and back-tested data. Data is provided for illustrative purposes only, it does not represent actual performance of any client portfolio or account and it should not be interpreted as an indication of such performance. IFA Index Portfolios are recommended based on time horizon and risk tolerance. Take the IFA Risk Capacity Survey (www.ifa.com/survey) to determine which portfolio captures the right mix of stock and bond funds best suited to you.  For more information about Index Fund Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ or visit www.ifa.com.