November 2023

Client engagement | Client story

An index of qualityscreened US investmentgrade corporate bonds“In our Access fixed income ETFs we’re seeking to implement the principles of active
management in a rules-based framework. Conventional wisdom suggests you mustgo active in bonds, you can’t just buy the index portfolio. We disagree—with Access,we’re looking to build a better beta.”
Brendan McCarthy, Managing Director, Goldman Sachs Asset Management

About the clientProfileObjectivesSolution

Goldman Sachs Asset Management
provides investment and advisory
services for the world’s leadinginstitutions, financial advisers andindividuals.

The firm was seeking a ‘smart beta’
fixed income index as theperformance target for a new US
dollar investment-grade corporatebond exchange-traded fund (ETF).

The FTSE Goldman Sachs
Investment Grade Corporate Bond
Index provides broad coverage of
US$ bonds while eliminating thebottom decile of low-quality issuers.

Client engagement | Client story

Client profile
Goldman Sachs Asset Management is one of the world’s leading asset managers,
providing clients around the world with a dedicated partnership and a focus on longterm performance.
Goldman Sachs Asset Management delivers investment and advisory services forthe world’s institutions, financial advisers and individuals. The firm oversaw morethan $2.6trn in assets under supervision worldwide as of September 30, 2023.

The FTSE Goldman Sachs
Investment Grade Corporate
Bond Index
The index provides a broad
representation of the US investmentgrade corporate bond market while
excluding issuers with the lowest
operating margin and highest
leverage.

Goldman Sachs Asset Management’s exchange-traded funds (ETFs) draw on thefirm's global reach and history of innovation. They seek to offer innovative solutions
for clients, leveraging the firm's intellectual capital in an ETF ‘wrapper’.
Within fixed income, Goldman Sachs Access ETFs aim to offer investors theperformance potential of active investing with the efficiency and low cost of passive(index-based) strategies. These strategies provide smarter access to the bondmarkets by embedding criteria such as liquidity, technicals or issuer fundamentals
into the indices tracked by the ETFs.

Smarter beta in corporate debt
For its Access ETF range, Goldman Sachs Asset Management was looking topartner with an experienced fixed income index provider to develop a qualityfocused approach for investing in US investment-grade corporate bonds.
Investment-grade US dollar-denominated corporate bonds are one of the largest
and most liquid segments of the global bond market.
The resulting ‘smart beta’ index would then act as the underlying benchmark of a
new Goldman Sachs Access ETF.
The firm set the following objectives for the new corporate bond index:•••••It should be broad-based and comprehensive;It should apply fundamental quality screens to the investment-grade
corporate bond universe;
The screens should help exclude weaker corporate bond issuers from theindex universe;
The weightings of new index should not deviate excessively from those of
the capitalisation-weighted market index;
The index should embed liquidity screens and weighting caps to ensure
adequate diversification.

A quality-screened investment gradeindex

Goldman Sachs Asset Management’s research and product development teams
worked closely with FTSE Russell’s fixed income specialists to create the FTSEGoldman Sachs Investment Grade Corporate Bond index.
The index is derived from the starting universe of the FTSE US Broad InvestmentGrade Corporate Index, a benchmark for US dollar-denominated bonds issued inthe US investment-grade bond market.
The FTSE Goldman Sachs Investment Grade Corporate Bond index serves as thebenchmark of the Goldman Sachs Access Investment Grade Corporate Bond ETF(GIGB).
The FTSE Goldman Sachs Investment Grade Corporate Bond index meets theobjectives set by Goldman Sachs Asset Management in the following ways:FTSE Russell

2Client engagement | Client story••••••It is based on the FTSE US Broad Investment-Grade Corporate Index (FTSEUS BIG), a comprehensive, broad-based index of US dollar-denominatedbonds, launched in 1985;
To aid liquidity, the bond universe is screened for larger issues (based on thedollar amount outstanding), and larger issuers (based on the total debtoutstanding);
The FTSE Goldman Sachs Investment Grade Corporate Bond index uses asingle, intuitive quality screen to capture and exclude the bottom decile ofcorporate bond issuers by creditworthiness;
The quality screen uses two complementary rankings, one income-based(operating margin) and one balance sheet-based (leverage);
The remaining index constituents are weighted by the market capitalisation of
their bonds;
To ensure adequate index diversification, issuer weights are capped at 5% (forissuers with fundamental indicators) and 3% (for issuers where fundamentalindicators are not observable).

Additional information
Further information on FTSE Russell’scomprehensive range of US fixedincome indices is available at:Americas Fixed Income Indexes |FTSE Russell

A single screen captures deterioration in issuer quality

The central idea behind the index’s design is that a company’s ability to generatecash and service debt is a good indicator of its financial health.
Any deterioration of its operating margin and any rise in its leverage can indicatethat a company is becoming stressed, leading to the potential underperformance of
its traded debt. It therefore makes sense to exclude the weakest bond issuers fromthe index portfolio. This hypothesis was empirically supported in the research
conducted by Goldman Sachs Asset Management and FTSE Russell ahead of theindex’s launch.

A long-standing collaboration

The FTSE Goldman Sachs Investment Grade Corporate Bond index is the fruit of along-standing collaboration between FTSE Russell and Goldman Sachs AssetManagement. The partnership combines Goldman Sachs’s expertise in asset
management and product design with FTSE Russell’s sophisticated index andbenchmarking solutions and capabilities in fixed income pricing and analytics.

FTSE Russell

3

ABOUT FTSE RUSSELL
FTSE Russell is a leading global provider of index and benchmark solutions, spanning diverse asset classes and investment objectives. As a trusted
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Market participants look to us for our expertise in developing and managing global index solutions across asset classes. Asset owners, asset
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For over 35 years we have been at the forefront of driving change for the investor, always innovating to shape the next generation of benchmarks
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