Goldman Sachs is making another big bet on a niche corner of the ETF market.
Goldman arrived late to the ETF business, and it has decided it would rather buy proven products than try to invent them from scratch. The logic is simple. Basic ETFs have been squeezed down to near-zero fees, while complex strategies can still command premium pricing. Neos sits firmly in that second camp.
The numbers show why. Based on Bloomberg Intelligence estimates, Neos's fee structure brings in about $222 million in annual revenue.
Mohit Bajaj, managing director of ETFs at WallachBeth Capital, put it plainly: large firms often find it simpler to purchase an established issuer than to launch their own funds and hope for adoption.
All but one of Neos's 19 ETFs have pulled in new money this year, even with fees that run higher than the competition.
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The broader category is having a moment. Morningstar data shows defined-outcome ETFs, which promise specific levels of protection or growth, holding about $74 billion. Derivative-income ETFs, which use options to boost payouts, hold roughly $186 billion.
Since its debut in 2020, JPMorgan's Equity Premium Income ETF (JEPI) has amassed $46 billion. Its sibling fund, JEPQ, tracks a technology-heavy index and layers on an options strategy for income. Together, those two funds have pulled in more than $11 billion this year alone, and each charges just 0.35%.
Neos's funds do something similar but with a different twist. They use options to produce income or to create what the industry calls defined outcomes, meaning investors know roughly what they might gain or lose in a given period. That combination is exactly what Goldman says it wants.
Goldman Sachs Asset Management's global co-head of third-party wealth, Bryon Lake, said, "This category is a category that we want to be in. Now, we feel like we've got one of the most complete ranges of income capabilities."
The up-to-$2.25 billion price works out to roughly 7% to 8% of Neos's assets under management. That is a hefty premium by ETF industry standards, but Bloomberg Intelligence analysts Neil Sipes and Ravi Chelluri say the above-average fees justify it.
Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, described Neos's business as a sturdy revenue stream that appeals to wealthy older investors. "It's hard to find that combination in an acquire-able company in the ETF space right now," he said.
The Innovator deal gave Goldman defined-outcome strategies. The Neos deal adds options-based income strategies. Together, they give the bank two complementary pieces of a fast-growing market.
The bottom line: This is a story about fees. Goldman is paying a premium because Neos can charge them, and investors keep paying. The question for you is whether strategies like these belong in your portfolio, and what those higher fees buy you in return.
Options-based funds can smooth out some of the ride, but they also cap upside and add complexity. The money flowing into these products suggests plenty of investors think the trade-off is worth it.
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