The Goldman Sachs Small Cap Equity ETF (GSC) navigated a complex market environment in the third quarter of 2025. Despite a positive return, it trailed its benchmark, highlighting the inherent volatility and opportunities within the small-cap segment. This period saw a strategic re-evaluation of holdings, with certain sectors providing tailwinds while others presented headwinds.
Small-cap equities, by their very nature, offer a dynamic landscape for investors. They represent a broad spectrum of emerging businesses that, while carrying higher risk, also possess the potential for substantial growth, eventually maturing into mid or even large-cap enterprises. This characteristic makes them a valuable component for portfolio diversification, complementing more established, larger-cap investments and offering a pathway to tap into future market leadership.
Q3 2025 Performance and Sectoral Contributions
In the third quarter of 2025, the Goldman Sachs Small Cap Equity ETF (GSC) recorded a net return of 5.57%, falling short of the Russell 2000 Index by 682 basis points. Positive contributions to relative returns were primarily driven by strong stock selection within the Real Estate sector and the fund's overweight allocation to Industrials. However, challenges arose from stock selection in the Information Technology and Health Care sectors, which were the main detractors from performance.
The Goldman Sachs Small Cap Equity ETF (GSC) faced a mixed performance landscape in the third quarter of 2025. The fund achieved a 5.57% return based on its Net Asset Value (NAV), after fees. Despite this positive gain, it significantly underperformed its benchmark, the Russell 2000 Index, by 682 basis points. An in-depth analysis of the portfolio revealed that specific strategic decisions had varying impacts. The fund benefited from astute stock picking in the Real Estate sector, which contributed positively to its relative returns. Additionally, an overweight position in the Industrials sector further boosted performance. Conversely, the Information Technology and Health Care sectors proved to be challenging, with stock selection in these areas negatively affecting the fund's overall relative returns. These results underscore the complex interplay of sector-specific dynamics and stock-level performance in driving overall fund outcomes.
Strategic Portfolio Adjustments and Future Outlook
During the quarter, the fund made a notable addition by initiating a position in Enpro Inc., a company specializing in the design, development, manufacture, and marketing of proprietary engineered industrial products. This move reflects the fund's strategy to invest in companies with strong competitive advantages and the potential for long-term growth, particularly those poised to benefit from cyclical recoveries and robust earnings growth.
A key strategic adjustment during the period involved the acquisition of shares in Enpro Inc., a firm renowned for its innovative engineered industrial products. This investment aligns with the fund's overarching philosophy of identifying resilient small-cap companies that demonstrate strong competitive moats and significant pricing power. The conviction behind this addition is rooted in Enpro's potential to capitalize on economic cycles and deliver sustained earnings growth, especially in an environment where future interest rate cuts could stimulate market activity. This proactive portfolio management also extends to reallocating capital to high-conviction small-cap names, optimizing the fund's position to exploit valuation discounts and enhance future performance.