My former Edward Jones advisor just punched a hole through the wall of his suburban branch office…

As the great Wayne Gretzky once said, don’t skate to where the puck already is… skate to where its going… And by the looks of it, Goldman Sachs followed it straight into the brokerage accounts of investors who trust TheStockRizzler67 more than a licensed financial advisor. 

Case in point, everyone’s favorite DJ CEO (read: David Solomon) just agreed to pay $2.25 billion for NEOS Investments, an ETF provider that didn’t even exist four years ago.

If you’ve never heard of it… NEOS launched in 2022 and already manages $30 billion across 19 funds. That’s apparently what happens when you take Wall Street options strategies, stuff them inside an ETF and let investors buy them without listening to someone in khakis explain the importance of diversification for 45 minutes. 

Again, these aren’t your standard “buy the S&P 500 and wake me up at retirement” funds either.

NEOS specializes in options-based income ETFs built for investors who would happily trade some future upside for a monthly check that clears today.

If you’re wondering how the sausage gets made… the funds typically own familiar assets like the S&P 500, Nasdaq-100 or U.S. Treasurys, then sells calls and puts around them to wring out additional income.

Investors get monthly cash. NEOS collects management fees. And financial advisors everywhere get another difficult question about why Uncle Randy seemingly earns 12% a year from something he discovered on Reddit. Safe to say, Goldman wants a seat at that table. 

And it’s hard to blame them. NEOS will dump another $30 billion into Goldman’s existing $40 billion pile of income and options-based ETF assets. 

Once Solomon finishes welding everything together, the company expects to oversee about $80 billion in active ETFs and $130 billion across its global ETF platform. That would make Goldman the eighth-largest active ETF provider in the world, according to Morningstar.

So what exactly is David Solomon buying for $2.25 billion?

Not the $30 billion sitting inside NEOS’ funds. That money still belongs to investors, regardless of how aggressively Goldman stares at it. 

Solomon is buying the fee hose connected to the tank.

Every dollar NEOS manages produces recurring revenue through expense ratios. If the market rises or investors keep throwing money into the funds, assets under management grow… and Goldman collects an even larger pile of fees without needing to find a new client for every dollar.

And this particular neighborhood is currently growing faster than a Florida subdivision during zero-percent interest rates.

Derivative-income ETFs now manage around $180 billion across the industry. According to Morningstar, the category has grown at a compound annual rate of more than 70% since 2021 as investors chase monthly income and attempt to baby-proof their portfolios (key word: attempt, if you know anything about covered calls… you know exactly the tradeoff risk).

This is merely Goldman’s latest raid on the active ETF refrigerator. 

Goldman already swallowed Innovator Capital earlier this year, adding “buffer ETFs” (not BUFFET) that sacrifice some upside to soften market losses for the folks who never mentally recovered from 2008…

Now NEOS adds the monthly-income plumbing to Solomon’s ETF McMansion. 

Goldman also said the deal will expand its “durable revenue.”
Translation: money that keeps showing up even when the IPO market is dead and this market goes back to normal.

There is, of course, some delicious irony here.

Retail investors fired their money managers to avoid paying someone to choose ETFs for them. So Goldman simply spent billions buying the ETFs they chose.

You might think you’re removing money managers from sucking the life out of your portfolio.

But sure as the sun rises, you can’t… you can’t remove your portfolio from the biggest institutions on Wall Street.

At the time of publishing this article, Stocks.News doesn’t hold positions in companies mentioned in the article.