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Goldman Sachs: Does It Add Value?

We continue our study of the ability of the leading mutual fund families to add value (generate alpha). Today, we look at the equity funds of one of the most prestigious Wall Street firms: Goldman Sachs (often thought of as the "smartest guys in the room"). The performance of this one takes home a Dubious Distinction award based on its performance, or lack thereof.

Goldman has almost $70 billion assets under management. The Web site of Goldman Sachs Asset Management certainly gives the "smartest guys in the room" impression. Consider the following statements from the site:

  • Its disciplined process that seeks "to adjust risk to participate in up markets and mitigate it in down markets in order to provide youwith strong, consistent and potentially repeatable returns over the long run."
  • It has a "broad team of over 100 investment professionals brings a global reach and perspective to the investment process across 10 offices worldwide."
  • While it's "not immune to uncertainty, we are committed to a forward-looking approach and process, allowing us to unveil opportunities in times of turmoil."
All sounds nice, but certainly nothing sounds unique. There are many firms that could say the very same things. So the question is: Does Goldman Sachs Asset Management add value, or is it the one benefiting?

As is our practice, we'll compare the performance of Goldman's actively managed equity funds to the similar funds from the two leading providers of passively managed funds: Dimensional Fund Advisors and Vanguard. The table below provides the comparisons for the 10-year period ending June 30, 2011.

The following is a summary of the data in the above table.

  • Relative to the funds of DFA, the Goldman funds didn't deliver value in even one single asset class.
  • Relative to the funds of Vanguard, the outperformed in just two of the seven asset classes where comparable funds were available.
  • An equally weighted Goldman portfolio underperformed an equally weighted DFA portfolio by 2.1 percent a year.
  • In the asset classes where comparable funds were available, an equal-weighed Goldman portfolio underperformed a Vanguard portfolio by 0.7 percent a year, and a DFA portfolio by 1.5 percent a year.
Note that Goldman's funds failed to outperform even in supposedly "inefficient" asset classes such as emerging markets and small-cap stocks (both domestic and international), earning it a Dubious Distinction award. For those who seek the "social benefits" of belonging to the Goldman club, those benefits have come at a very steep price.

More on MoneyWatch:
USAA: Does It Add Value? Legg Mason: Does It Add Value? Oakmark: Does It Add Value? Did John Bogle Get It Wrong? Why Basing Investments on Economic Conditions Is a Bad Strategy
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