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On Monday, Goldman Sachs, through their GS Connect ETN platform, launched their second ETN (NYSEARCA:GCE). The ETN is linked to a very strange (in my opinion) index – the Claymore CEF Index.

On the one hand the index is bizarre in that it is simply a compendium of the U.S. traded closed-end funds (CEFs) ranked by distribution yield and discount to NAV. The CEFs have no relationship to each other. The different CEFs concentrate on different sectors, styles, etc… It's strange in that an investor really isn't buying into any particular investment thesis. Each CEF is managed in a certain way for a certain economic goal, but their all different.

Moreover, not only does GCE charge a 0.95% fee, but each underlying CEF also charges management fees – the dreaded fee on fee scenario. The basket is a total melting pot of CEFs. On the other hand, by buying the ETN, an investor would instantaneously acquire a fund-of-funds, each of which is actively managed. Only there is no way to separate the good managers from the bad – you get them all. In short, I'm not sure why anyone would want this.

You would be better off just buying directly into the CEFs you thought were valuable (it would also be cheaper this way). Apparently Goldman also didn't think many people would want this ETN since they registered it to issue a maximum of $50 million (most ETNs register $2.5 billion and issue whatever portion of that the market demands). I'll assume they created this ETN primarily for one buyer that had the interest. Their first ETN, GSC, is primarily owned by a single entity.

The ETN index is strange indeed – but it does definitely introduce active management to an ETN. Lord only knows what we'll see next.

Disclosure: none

Source: Goldman Sachs Introduces Active ETN Management