A new frontier in portfolio management

In January, we introduced ‘active ETFs’ into our portfolios. These provide investors new levels of finesse when it comes to managing the balance between ‘active’ and ‘passive’ exposures in their portfolios as they offer a best of both worlds alternative to conventional ‘tracker’ funds.

Employing ‘passive’ investment strategies, or so-called ‘tracker funds’, enables us to reduce portfolio charges and improve liquidity – meaning that we can be more nimble when making tactical adjustments to our portfolios.

Passive funds track the regional stock or bond markets, or the industry sectors, in which we want to invest, for tiny fees. In doing so, they also guarantee to underperform the indices they follow through a combination of what’s called ‘tracking error’ and the charges they impose.

Although both of these have been whittled down by huge competitive pressures, they, by definition, make it impossible to outperform a target market or sector.

This led us to research the next frontier in efficient portfolio management, namely, what are called ‘active exchange-traded funds’ or ‘active ETFs’ for short.

A hybrid of active and passive approaches

In essence, active ETFs provide a blend of both active and passive investing attributes. They incorporate an active strategy, which delivers the ability to add alpha, alongside the intra-day liquidity and transparency of an ETF. They’re also coming to market with significantly lower fees than traditional actively-managed funds.

Importantly, they also offer the ability for portfolio managers like us to set our own levels of tracking error.

There’s a broad spectrum of active ETFs available. Some are driven by fundamental investment approaches, others by systematic quantitative investment (some offer a blend of the two). We chose to focus on the quantitative or ‘quant’ investment space.

Such funds are underpinned by a data-driven, quantitative investment process that, in the case of our chosen provider, systematically evaluates 15,000 global stocks a day using over a trillion data points from more than a 100 data vendors.

This is an area where scale is key; access to the largest data sets provides a critical competitive advantage. The machine learning and AI integration that drives all this requires meaningful technology resources and long-term investment, meaning that very few investment companies have been able to scale this new peak in investment management. This was a key factor in our research into potential providers.

Finding the right provider

After rigorous research we selected the Goldman Sachs Alpha Enhanced Equity ETFs platform due to a combination of investment reasons.

The first was the breadth, depth and economies of scale afforded by its cutting-edge technology, which has required immense investment to develop and maintain.

The second, was that Goldman Sachs was able to demonstrate an impressive track record for these strategies based on its QIS quantitative investment approach that it’s offered via mutual funds to institutional and sovereign investment clients for some years, with a range of tracking errors available. The difference is that it’s now available as an ETF where the charges are much lower.

A last deciding factor was Goldman Sachs’ willingness to discuss commercial terms. This enabled us to secure highly competitive fee rebates for being early investors, despite this being an already well-established investment approach with an enviable track record.

We have now introduced satellite positions in US, global, European, Japanese, and emerging market stock markets employing Goldman Sachs Enhanced Alpha funds. So far, these positions account for between 10% and 15% of the total equity holdings in each of our MAF portfolios.

Behind the curtain

The Goldman Sachs Alpha Enhanced Equity ETFs benefit from Goldman’s recognised leadership in ‘index enhanced’ strategies and from its massive $2bn a year ongoing investment into AI with the aim of becoming a true ‘tech-finance’ institution. The bank was among the first of its peers to own its own supply of Nvidia’s vaunted GPU chips, with one of every four employees now being systems engineers.

This gives the Goldman platform the ability to scale and to adapt its models. This has been greatly empowered by the centralisation of what was previously siloed data within its QIS process. This has enabled the platform to take on new metrics such as tone-of-voice recognition data derived from company earnings announcements or shareholder conferences.

Although some aspects of the Goldman investment process remain proprietary, we’ve seen enough to know that it creates reliable, quantifiable alpha signals and that advances in AI are accelerating the rate at which such signals can be recognised and acted upon.

Better quality building bricks

Active ETFs are a useful building block for us, one which other portfolio managers are sure to utilise in the years ahead. They’re especially adept in more inefficient market areas where there’s less analyst coverage, such as emerging markets. As such, they enable us to add incremental alpha to our portfolios in a risk-controlled way.

They also enable us to minimise factor-based tilts, which include characteristics such as value, size, momentum, and quality, and to target alpha-based tilts instead.

Important Information

The value of investments and any income from them can fall and you may get back less than you invested.

Handelsbanken Wealth is a trading name of Handelsbanken Wealth & Asset Management Limited which is authorised and regulated by the Financial Conduct Authority (FCA) in the conduct of investment and protection business and is a wholly-owned subsidiary of Handelsbanken plc. Tax advice which does not contain any investment element is not regulated by the FCA. This document has been prepared by Handelsbanken Wealth for customers/potential customers who may have an interest in its services. The provision of this information does not constitute tax, pensions or investment advice.

Tax rates and legislation are subject to change. We cannot guarantee to inform you of any such changes and Handelsbanken Wealth accepts no responsibility for any inaccuracies or errors. Any levels of taxation referred to depend on individual circumstances and the value of tax reliefs are those which apply at 19 February 2026.

The value of the pension received when taking benefits from a pension will depend on various factors including, but not limited to, contributions made, charges and fees, tax treatments, annuity rates, investment performance. Professional advice should be taken before any course of action is pursued.

This does not constitute any recommendation to buy, sell or otherwise trade in any of the investments mentioned. Handelsbanken Wealth cannot accept responsibility for the consequence of any action taken or failure to take action by a reader on the basis of the information provided. When we provide advice in relation to investment, our own investment management services will usually be recommended. When advice on pensions or other products outside an investment management relationship is required, we will recommend products chosen from a limited selection of providers that have been appointed on the basis of its judgement in their quality of service, investor protection, financial strength and, if relevant, their financial performance. As a result, any advice given by Handelsbanken Wealth in respect of retail investment products will be restricted as defined under the FCA rules.

This document has been issued by Handelsbanken Wealth.

Registered Head Office: 25 Basinghall Street, London EC2V 5HA. Registered in England No: 4132340