Investment Ideas 2023

COMING UP FOR AIR

KEY THEMES

Inflation: Finally Falling?

Recession Risks

The Return of Yield

China’s Reopening

Energy Transition, Energy Security

This financial promotion is provided by Goldman Sachs Bank Europe SE.

COMING UP FOR AIR
Last year brought challenges that many investors
had not grappled with in decades, and some had
never faced at all. In 2023, the focus may shift from
rapidly rising inflation to slowing economic growth.
But while recession risk and geopolitical tensions
should keep markets volatile, we believe the new
year is also likely to present opportunities. Bond
yields are finally offering attractive real income
potential, China’s vast economy is beginning its long-
awaited reopening and we believe equity valuations
are more attractive. We invite you to dig deeper into
our key themes of 2023 and the potential sources of
return they may create.

2 | INVESTMENT IDEAS 2023 Goldman Sachs Asset Management

04 Inflation: Finally Falling?
Price gains have been slowing in places, but the record low inflation of
decades past is unlikely to return.

06 Recession Risks
Decelerating growth, sticky inflation and still restrictive monetary
policy underscore the need for active security selection.

08 The Return of Yield

A sharp rise in inflation-adjusted income potential suggests it may be
time to bring on bonds.

10 China's Reopening
Policy focus is shifting toward rebooting economic activity, but we
believe navigating China’s complex economy will still require a hands-
on approach.

12 Energy Transition, Energy Security

Policy and energy spending may alter the trajectory of climate change,
and investors will have a role to play.

Goldman Sachs Asset Management INVESTMENT IDEAS 2023 | 3

INFLATION: FINALLY FALLING?
Inflation turned into a persistent, double-digit energy prices remain a risk. The timing and magnitude of
problem in 2022 as prices for everything from gas to improvement across regions is still uncertain. A pressing
groceries and haircuts to hotel stays surged higher. risk is that tight labor markets fail to relieve pressure
Pandemic-related issues and geopolitical conflict, on wages and services prices. Fresh supply shocks,
meanwhile, disrupted the entire global supply chain, particularly for commodities, are also a possibility. And
adding fuel to the fire. But after a year of aggressive even as the economy rebalances, inflation could settle at
monetary tightening helped to reduce demand, investors higher levels due to structural forces. For example, global
are hoping that price pressures will finally start to trade is becoming less driven by cost and efficiency and
moderate in 2023 as supply bottlenecks clear. There more by considerations of national security, supply chain
have been some tentative signs so far. US core inflation resilience and sustainability. With investors still hovering
decelerated toward the end of last year and euro area somewhere between hope and anxiety, we think a focus on
headline inflation also registered an unexpected decline durable cash flows remains essential.
in November—the first one in months—though high

US Core Inflation: Tentative Signs of Slowing

Annual Core Inflation (%)
7 Euro Area Japan UK US 2% Target

-1

-2
2016 2017 2018 2019 2020 2021 2022

Source: Macrobond, Goldman Sachs Asset Management. US reflects core Personal Consumption Expenditures (PCE) inflation. As of November, 2022. For illustrative purposes only.

Past performance does not predict future returns and does not guarantee future results, which may vary.

4 | INVESTMENT IDEAS 2023 Goldman Sachs Asset Management

Investment Ideas to Consider
term investors with an attractive potential opportunity
A Strategic Approach to Real Assets to invest in some of the fastest growing and most
Real assets, such as real estate and infrastructure, have disruptive companies at historically attractive valuations.
historically offered unique attributes—relatively attractive The inflationary environment encourages businesses to
yield and predictable growth, inflation-hedging benefits invest in innovative solutions to reduce costs and increase
and lower volatility than broad equities. Pinpointing the efficiency, in turn serving as a deflationary force, while
most attractive potential opportunities, however, requires companies offering innovative products also tend to exert
a discerning approach, particularly if US recession risk considerable pricing power, making it easier for them to
becomes more pronounced and inflation cools more rapidly pass on higher input costs to customers. We have started to
than expected. But inflationary pressures could remain see the market differentiating between high growth, good
elevated in the medium term due to deglobalization quality companies and high growth, low quality companies,
trends, reshoring supply chains back to developed markets, and we expect that to continue. We believe disciplined
higher commodity prices and a tighter labor market. active managers can take advantage of the disconnect we
Infrastructure assets have benefitted in this environment currently see between fundamentals and valuations to
as their cash flows are typically underpinned by contracts invest in some of the most innovative companies—from
linked to inflation and incumbent asset values increase tech to biotech to clean tech—and position their portfolios
as land and material costs rise. A focus on secular growth for the future.
beneficiaries on the right side of disruption may also
prove rewarding. For example, idiosyncratic opportunities
tied to digital infrastructure (data centers, cloud
Consider Moving Down in Cap
connectivity), transportation (airports, logistics) and social Small caps have historically performed well when inflation
infrastructure (healthcare, education) offer attractive has been high and falling. There have been 20 years since
long-term return potential. In addition, governments are 1950 when starting inflation began above 3% and ended
embracing some of the largest infrastructure investments the year lower. The median small cap return in these
in history, including the bipartisan Infrastructure Law years was 21%. Relative to large-cap stocks, the median
and the Inflation Reduction Act (IRA) in the US and the return was 5%.1 In addition, small caps have historically
EU Green Deal in Europe. Europe is also revamping its outperformed following two consecutive quarters of GDP
industrial and subsidies policy in response to the IRA contraction, a common, though not universal, definition of
later this year. All of these will result in substantial fiscal recession, and in periods after the Federal Reserve (Fed)
stimulus for infrastructure companies, particularly those stops raising rates.2 If inflation continues to ease or if the
tied to clean energy. economy slips into recession, we believe these assets may
be able to deliver a repeat performance. Another potential
benefit: many small caps offer access to secular growth and
Innovation at Attractive Prices, But May Require innovation. While these long-duration equities suffered
Selectivity in 2022, investors considering changes may now have
Few companies were spared in last year’s equity market an opportunity to add exposure at a time when relative
sell-off, but innovation-oriented equities—companies valuations are at or near historical lows.
on the right side of long-term disruptive themes—
experienced some of the sharpest drawdowns given
their greater sensitivity to rising rates and starting point
of elevated valuations. We believe that some of this
correction was warranted, but that many share prices have
meaningfully over-reacted. In our view, this presents long-

1. Furey Research Partners, FactSet as of 31-Dec-2022. Small Cap is CRSP 6-8 Decile returns from 1950-1978 and Russell 2000 returns from 1979-2021. Large-cap is CRSP 1 -2
Decile returns from 1950 -1978 and Russell 1000 returns from 1979 -2021.
2. Furey Research Partners and FactSet as of 31-Dec-2022. Average Russell 2000 returns after the Fed stops hiking are 13.1%, 18.5%, and 12.0% (annualized) over the forward 6
months, 12 months, and 2 years, respectively. Hiking stop dates are: Jul-84, Feb-89, Feb-95, May-00, Jun-06, Dec-18.

Goldman Sachs Asset Management INVESTMENT IDEAS 2023 | 5

RECESSION RISKS
Tighter monetary and fiscal policies were the main longer. In the euro area, reduced energy demand owing
drivers of financial conditions and market behavior to mild winter weather, along with resilient activity data,
last year. The Federal Reserve raised rates more quickly may mean the bloc is able to avoid a recession this year. In
than at any time since the 1980s, driving asset prices— the UK, we expect a recession given persistent headline
including those for equities, bonds, and real estate— inflation, rising mortgage rates and structural headwinds
lower, while the European Central Bank lifted rates out to labor supply.
of negative territory for the first time in nearly a decade
We believe investors may want to consider a
as energy prices soared. In 2023, the focus may shift to
defensive approach in the near term while looking for
slowing economic growth. The US economy may be able to
opportunities to re-risk throughout 2023. A complex
narrowly avoid a recession, but even if it does, we expect
macro backdrop of decelerating growth, sticky inflation
growth to be tepid. While inflation may ease, it may settle
and still-restrictive monetary policy implies investors are
above the Fed’s long-term target of 2%, in part due to a
in an alpha-driven environment in which active security
persistent scarcity of workers and strong wage growth.
selection will trump simple beta exposures.
That suggests monetary policy may remain tighter than it
has in recent decades, with rates likely to stay higher for

Low Equity Risk Premia Offer Little Incentive to Ascend the Risk Curve

Difference In Yield (%)

16 US Recession Shiller EY vs. US 10Y Yield Shiller EY vs. US 10Y Real Rate Shiller EY vs. Moody's Baa Credit Yield

12

-4

-8

-12
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

Source: Robert Shiller, Haver Analytics, DataStream, and Goldman Sachs Global Investment Research. As of December 14, 2022. For illustrative purposes only. Past performance
does not predict future returns and does not guarantee future results, which may vary. Please see additional disclosures at the end of this publication.

The economic and market forecasts presented herein are for informational purposes as of the date of this document. There can be no assurance that the forecasts will be
achieved. Please see additional disclosures at the end of this document. Diversification does not protect an investor from market risk and does not ensure a profit. Past
performance does not predict future returns and does not guarantee future results, which may vary.

6 | INVESTMENT IDEAS 2023 Goldman Sachs Asset Management

Investment Ideas to Consider
Strong Balance Sheets and Earnings Strategically Extending Duration
For equity markets, 2022 was mostly about valuations Longer duration exposure may provide a more durable
de-rating, particularly in growth equities. The focus source of long-term income and a hedge against recession
in 2023 is likely to shift to a lack of corporate earnings if one arrives. If it doesn’t, we still expect US yields to peak
growth. We expect the low-growth environment to at some point in 2023 as the current Fed hiking cycle nears
cause margin compression in most sectors, with energy an end. Having exposure to the somewhat stickier yields
a notable exception. How much margins compress will on intermediate-duration bonds may provide a reliable
depend on whether economies slip into recession—and if longer-term cash flow for income-oriented investors.
they do, how deep the recession turns out to be. In these
conditions, we think equity investors will want to favor
exposure to profitable companies with strong balance Flexibility with Liquid Alts
sheets and earnings. Opportunities may exist in high- Liquid Alternatives may offer greater flexibility in a
quality, defensive sectors that have typically held up well downturn by providing investors with broad, liquid
in similar conditions, including energy, consumer staples exposure to the hedge fund universe. Diversified exposure
and healthcare. For credit investors, we believe a focus among hedge fund strategies may help investors weather
on earnings stability, liquidity positions and key credit fluctuating economic uncertainty and the unknowns that
metrics such as net leverage and interest coverage, may be lie ahead in 2023. Last year, persistent US dollar and
warranted in the current environment. For equity investors, energy market strength along with a steady rise in global
a binary approach to looking at either "growth" or "value"— yields boosted macro trend-driven strategies such as
the dominant prism through which investors viewed the managed futures. Equity long-short strategies, on the
markets in the cycle following the 2008 Global Financial other hand, struggled amid the re-rating of many of the
Crisis (GFC)—in our view may no longer be the correct one. top performing stocks from the pandemic period. The
highest-returning strategies in 2023 may be different. For
investors with sufficient risk tolerance, strategic allocation
Strengthening Your Core
to liquid alternatives may complement existing long-only
Maintaining exposure to high-quality, investment-grade allocations, add return potential in a more muted return
fixed income assets—the foundation of a core bond environment and help to cushion portfolios should major
allocation—can add balance to a portfolio amid market economies suffer a hard landing and a sharp decline in
volatility and downside risks such as recession. The equities and other risk assets.
combination of high inflation and aggressive monetary
tightening in 2022 blunted the balancing potential of core
bonds, but we think peaking inflation and higher starting
yields will allow high-quality fixed income to provide
more cushion in 2023, potentially offsetting declines
in speculative-grade fixed income, equities, and other
risk assets. In a hard landing scenario, we believe short-
duration Treasuries, Bunds, Gilts and other developed-
market government bonds would likely rally in anticipation
of policy easing, while US agency mortgage-backed
securities should prove resilient due to low cyclicality. We
would expect exposure to investment-grade credit issued
by companies in defensive sectors with healthy balance
sheets and limited margin pressure to also provide ballast
to a diversified portfolio by offsetting potential weakness
in riskier assets such as high-yield credit and equities.

Goldman Sachs Asset Management INVESTMENT IDEAS 2023 | 7

THE RETURN OF YIELD
Trying to time a turn in the rate of inflation or the Even so, we are living in an increasingly complex and
global growth outlook is always difficult. The pandemic unpredictable world, and we believe it’s important that
and the war in Ukraine make it even more complex today. investors embrace a selective, quality-first approach in
Fortunately, investors may not have to. That’s because the their fixed income allocations until there is more clarity on
sharp rise in real or inflation-adjusted yields means that the global growth outlook.
fixed income assets today are already offering the most
attractive income and total return potential that we’ve Need Income? Global Bond Yields Near Decade Highs
seen in more than a decade. To put it simply, bonds are
Fixed Income Yields (%)
back. After the 2008 GFC, interest rates at zero or below Last 10 Year Range Current 1 Year Ago
12
forced investors to take on more risk to generate return. 10
Now, with a mix of higher and stickier inflation, higher 8
growth volatility and higher real yields, we’ve shifted 6
from a regime in which There Is No Alternative (TINA) to 4
equities and other risk assets to one in which There Are 2
0
Reasonable Alternatives (TARA). The sheer speed of this
-2
shift has been stunning. As investors enter the new year, it
US TIPS 10y

Germany 10y

Spain 10y

UK 10y

US 10y

Italy 10y
European
IG Credit
CMBS

MBS

US IG Credit

ABS

External EMD
European
HY Credit
may help to think about it this way: in late 2020, almost a
year into the COVID-19 pandemic and more than a decade
after the 2008 GFC, the total value of negative-yielding Source: Bloomberg, Macrobond, Goldman Sachs Asset Management. As of January
bonds around the world reached a record high of almost 17, 2023. For illustrative purposes only. Past performance does not predict future
returns and does not guarantee future results, which may vary.
$18 trillion.3 That was the result of extraordinarily loose
US 10 Year TIPS Bond , Germany 10 Year Government Bond, Spain 10 Year Government
monetary policy in an era of negligible inflation and Bond, United Kingdom 10 Year Government Bond, US 10 Year Government Bond, Italy
anemic economic growth in major economies such as the 10 Year Government Bond, ICE BofAML Euro Corporate Index, ICE BofAML US Fixed
Rate Agency CMBS Index, ICE BofAML Mortgage Backed Securities Index, ICE BofAML
eurozone and Japan. Today, policy shifts at major central US Corporate Index, ICE BofAML Fixed Rate Asset Backed Securities Index, J.P. Morgan
EMBI Global Diversified, ICE BofAML Euro High Yield Index.
banks to counter inflation have caused negative-yielding
debt to largely disappear. Across geographies and sectors,
yields are near their highest levels in a decade, offering
attractive income and total return potential.

Diversification does not protect an investor from market risk and does not ensure a profit.

8 | INVESTMENT IDEAS 2023 Goldman Sachs Asset Management

Investment Ideas to Consider
Quality Short-Duration Corporates Private Credit
With the precise path of inflation and economic growth We believe private credit can be a powerful complement
uncertain, we see value in high-quality short-duration to traditional fixed income strategies, offering
US and European corporate bonds. These securities incremental income generation, return enhancement and
offer yields that are considerably higher than the still- diversification. As businesses adjust to a higher-for-longer
low savings rates on bank deposits and offer investors cost of capital environment, current yield levels mean that
attractive potential returns without the need to take on investors are getting paid well to be a lender. The floating-
undue interest rate or credit risk. Corporate fundamentals rate structure of most private loans offers valuable
for both US and European bonds are robust, leverage protection against inflation, while the ability of lenders
ratios are contained, interest coverage ratios are high and to conduct in-depth diligence on borrowers differentiates
financing needs are limited, since many companies raised these assets from comparable public fixed income
debt in 2021 when rates were lower. securities. Private and public fixed income opportunities
come with different risks, with the former considerably less
liquid. But in our view, the risk-adjusted return potential
Agency Mortgage Securities associated with these direct lending opportunities is
Having entered 2022 with historically tight spreads— strong, and investment opportunities are likely to grow
the result of Fed purchases—agency mortgage-backed as more companies tap private credit markets to finance
securities (MBS) exited the year with the widest spread deals.
level outside of the COVID-19 stress period and the 2008
GFC. We think lower rate volatility combined with less new
supply will lead to a performance turnaround in 2023. Low
cyclicality also makes the asset class, which has limited
credit risk owing to its implicit or explicit government
guarantee, attractive in an environment of decelerating
growth.

3. Macrobond and Bloomberg, as of November 22, 2022.

Goldman Sachs Asset Management INVESTMENT IDEAS 2023 | 9

CHINA’S REOPENING
Chinese financial assets have depreciated significantly In 2023, we believe it will be vital for investors to
since early 2021. We believe there were many reasons closely monitor policy in China while keeping a close
for that, from real estate sector stress and tech sector eye on developments in key areas, including goods
regulations to geopolitical tensions and the country’s trade, international travel and commodity channels. The
sweeping COVID-19 restrictions. Navigating China’s path for the world’s second-largest economy to reopen
complex economy will still require an active, hands-on after almost three years of zero-COVID policy will not be
approach in 2023. But in our view, China will remain straightforward. Growth could be sluggish in the first half
an important part of any strategic asset allocation. as economic reopening triggers a rise in COVID-19 cases
Since November, Chinese policymakers have stepped up but could accelerate in the second. Meanwhile, we believe
property sector support and softened their stance on the housing market downturn, geopolitical tensions, and
the tech sector. The government has also departed from technology restrictions will keep China in focus beyond
its zero-COVID policies more swiftly than anticipated, the reopening excitement.
resulting in a re-rating of the risk premium on Chinese
assets. Chinese President Xi’s recent meeting with US China Growth: Expectations for a Short-Term Pickup but Long-
President Biden also suggests a willingness to maintain Term Slide
open lines of communication. All of this suggests that China Real GDP Forecasts (Percent Change, Year Ago)
Beijing’s policy focus may be turning back to rebooting 6 GS Consensus*
economic activity.
5

2
2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Source: Bloomberg, Consensus Economics, Goldman Sachs Global Investment
Research. Macro Outlook 2023: This Cycle Is Different. As of January 9, 2023. For
illustrative purposes only. The economic and market forecasts presented herein are
for informational purposes as of the date of this document. There can be no assurance
that the forecasts will be achieved. Please see additional disclosures at the end of
this document.

The economic and market forecasts presented herein are for informational purposes as of the date of this document. There can be no assurance that the forecasts will be
achieved. Please see additional disclosures at the end of this document. Diversification does not protect an investor from market risk and does not ensure a profit.

10 | INVESTMENT IDEAS 2023 Goldman Sachs Asset Management

Investment Ideas to Consider
Near-term Catalysts, Long-term Potential Secular Growth Trends
Opportunities
Policymakers’ emphasis on encouraging domestic
Chinese equities rallied sharply as 2022 wound down in innovation is spurring growth across a variety of segments,
anticipation of reopening. But market volatility in China and a paradigm shift towards a sustainability-focused
may remain high in the months ahead with domestic growth model could provide attractive secular growth
factors, including policy easing, and property stabilization, trends for investors to tap into. We believe smart retail,
likely to influence valuations and performance. While the development of fintech systems, cloud computing and
pace of consumption may wax and wane during the early an increasing focus on network & cybersecurity may
stages of reopening, we believe there may be compelling represent opportunities in Chinese equities. However,
opportunities in certain consumer-facing areas, including we think being selective is important in the current
food, high-end liquor and cosmetics companies. Hotels, environment, particularly when it comes to companies
restaurants, and theme parks are also favorably exposed to that are likely to face headwinds from regulatory
any reopening-driven consumption boost. If reopening is interventions or geopolitical tensions. Investors may
interrupted or delayed, equities would likely struggle. That want to consider exposure to quality market leaders in
cannot be ruled out, but we think it is unlikely. Beyond the China’s semiconductor space that have benefitted from
near-term catalysts, we think a focus on quality companies localization trends, for example. Meanwhile, investing in
aligned to long-term structural trends such as innovation the transformation of China’s energy and industrial sectors
and sustainability is likely to boost return potential. may play an essential role in achieving a green economy.
Overall, we believe China’s size and the breadth of its Chinese policymakers have set stringent targets for de-
equity market—already about 30% of the MSCI EM index4 carbonization, including a roadmap for achieving China's
and set to grow — may merit a standalone allocation for goal of carbon neutrality by 2060. We expect this to create
investors considering exposure to the country. potential opportunities across supply chains and propel
clean energy innovation, especially in renewable energy
product manufacturing and electric vehicles.
EM ex-China
We continue to view EM ex-China equities as a diverse and
Consider Emerging Market Corporates
distinct asset class, one that provides access to smaller
countries and presents potential alpha opportunities. EM economies start 2023 facing numerous challenges,
Attractive valuations, robust earnings, and global funds’ including rising rates, slower growth, and a strong dollar.
underweight allocations present potential opportunities Geopolitical risk also remains elevated. However, we
for investors looking to allocate towards the asset class in see select potential opportunities in the EM corporate
2023. However, we believe a selective approach and area bond market, which is large and diverse yet remains
expertise will be crucial to helping investors capitalize on underinvested by global investors. EM corporate bonds
them. The recent resilience in some EM assets and regions generally offer higher yields than comparably rated
is a sign that investors have been differentiating between developed market (DM) bonds. And many companies have
countries based on macro fundamentals, something that strong competitive positions, stable business models,
is likely to continue. Overall, the rapid expansion of EM and possess pricing power, which can help when economic
economies has created a sizeable investment opportunity growth slows. The sector may also help to complement
in the past few decades—and, in our view, will continue existing corporate bond or EM sovereign bond allocations.
to do so. But EM equities can be a complex asset class In addition, Asia high-yield debt—a subset of the broader
to navigate. Information dispersion can be great across EM corporate bond market—may see stabilization
a universe of companies that spans five continents. We following record defaults in China’s high-yield property
believe using a wide variety of data sources and forms of sector. Constructive housing policy developments and the
analysis in a diversified and broad portfolio can deliver an loosening of Zero-COVID restrictions should also help.
advantage.

4. MSCI, Goldman Sachs Asset Management. As of December 30, 2022.

Goldman Sachs Asset Management INVESTMENT IDEAS 2023 | 11

ENERGY TRANSITION, ENERGY SECURITY
2022 may be remembered as the year of new Companies that have already achieved significant
geopolitical and energy market realities. As we move energy efficiency in their own operations and supply
into 2023, Russian natural gas exports to Europe remain chains suggest that the efficient use of capital can be a
severely curtailed—a situation that continues to upend powerful lever to protect margins and enhance resilience.
the balance between supply and demand and cause We believe that should heighten efforts to find solutions
swings in prices. However, energy prices have fallen since and capital to drive development of sustainable practices.
the second half of December, in part as mild temperatures Over time, we believe policy and energy spending can alter
in Europe have driven down demand. The fall in gas prices, the trajectory of climate change, and we think investors
coupled with regulatory measures introduced through have a key role to play in this area.
last year, potentially suggest a more modest increase
in bills for European households in the coming months. Europe Prepared for Winter but Must Refill Storage Again Come
But while energy security threats in Europe may be much Summer
more subdued in the near-term, come summer, Europe will
Northwest European Storage (Billion Cubic Meters)
have to refill storage all over again, this time likely in the 60 Capacity
absence of Russian flows from the outset.
50
As energy policy focus has shifted toward ensuring
40
long-term affordable, clean and secure energy, there
2018
has been a step-up in regulatory momentum for several 30
2019
technologies, including clean hydrogen, carbon capture 20 2020
2021
utilization and storage (CCUS), energy storage and
10 2022
energy efficiency. Both REPowerEU in Europe and the US 5ya
Inflation Reduction Act (IRA) have provided substantial 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
improvement in the regulatory framework for clean tech
and the need to accelerate the build-out of renewables. Source: Bloomberg, Goldman Sachs Global Investment Research. Real Asset Investing
Outlook. As of December 14, 2022. For illustrative purposes only.
However, the process of scaling up investments in
renewables will not happen overnight. While incentives for
change are there, the time it takes to make those changes
is slowing the transformation. We believe the clarity,
significance, and duration of support for key technologies
such as renewable generation, energy storage, and carbon
capture along with robust and growing demand may
speed up the process in the years to come.

The economic and market forecasts presented herein are for informational purposes as of the date of this document. There can be no assurance that the forecasts will be
achieved. Please see additional disclosures at the end of this document.

12 | INVESTMENT IDEAS 2023 Goldman Sachs Asset Management

Investment Ideas to Consider
Innovative Environmental Solution Providers Financing the Energy Transition Through Green
Bonds
We see compelling opportunities to invest in innovative
companies providing solutions in areas such as clean In our view, the continued focus of bond issuers on
energy, resource efficiency and water sustainability. Some climate mitigation and adaptation creates strong growth
clean energy companies have eliminated or are reducing potential for green bonds, and this growth may expand
emissions outright by providing cleaner alternatives to the opportunities for public market investors committed
traditional energy sources (such as solar, wind, bioenergy to advancing environmental progress through their
or hydrogen). Alternatives to fossil-based power sources fixed income allocations in the years to come. Replacing
have meaningfully come down the cost curve, in many a portion of a conventional fixed income portfolio with
cases reaching cost-parity, encouraging broader-based green bonds can potentially bring benefits beyond helping
adoption. Increasing energy efficiency is another key investors achieve their climate ambitions. For example,
imperative needed to address climate change. The idea green bonds can help reduce climate change-related risks
of greater efficiency touches most industries and areas in portfolios resulting from policy changes such as carbon
of life, but we find the greatest potential for net-positive taxation that could lead to stranded assets. Extraordinary
environmental impact in transportation and logistics market volatility and rising interest rates slowed the
(most notably around greater adoption of electric vehicles), supply of new green bonds in 2022 by hindering some
smart cities including improving building efficiency, and issuers from tapping capital markets, just as we saw in
manufacturing. We also see opportunities in innovative the broader bond market. In addition, as companies from
companies helping to secure a sustainable water future by more sectors and sovereigns in more regions issue green
solving the complex water needs of businesses in critical bonds, we believe investors will have more opportunities,
sectors of the economy, from agriculture to energy. which may further stimulate demand. Looking ahead, we
estimate there will be about €600 billion of green bond
issuance in 2023, potentially taking the market to more
Clean Energy Infrastructure than €2 trillion as sovereigns and corporates continue to
We expect public and private equity market investors focus on environmental considerations.5
to continue to play a major role in providing both the
capital and the expertise required to build the critical
clean energy infrastructure assets required to reach net
zero. That infrastructure includes investments for the
generation, transmission, and storage of green power,
such as electricity produced from solar and wind as well
as investments to enable the transition from domestic
and commercial combustion engines to electric vehicles.
Looking more closely at energy storage, for example, two
recent developments further solidifying demand are: (1)
the recent passage of the Inflation Reduction Act in the US
and (2) continued global focus on energy security, primarily
because of the European energy crisis. We believe success
in energy storage requires deep knowledge of energy
markets, expertise in battery technology, understanding of
the regulatory framework and experience developing and
optimizing renewables assets.

5. Goldman Sachs Asset Management and Bloomberg. This forecast assumes lower market volatility in 2023 and incorporates our estimate of postponed issuance from 2022.

Goldman Sachs Asset Management INVESTMENT IDEAS 2023 | 13

We would be happy to discuss these
or any other strategies to help you
navigate today’s markets.
Please contact your Goldman Sachs
Representative or explore more insights
on gsam.com.

14 | INVESTMENT IDEAS 2023 Goldman Sachs Asset Management

Glossary denominated below investment grade rated corporate debt publicly issued in the US
Energy security is the uninterrupted availability of energy sources at an affordable domestic market.
price. ICE BofA Euro Corporate Index value, which tracks the performance of Euro dollar
Inflation is the rate at which prices for goods and services rise. denominated investment grade rated corporate debt.
Risk assets those with a high degree of risk and volatility, such as such as equities, ICE BofA High Yield Master II OAS uses an index of bonds that are below investment
high-yield credit, commodities, and currencies. grade (those rated BB or below).
Alpha measures the difference between a portfolio’s actual return and its expected EMBI (Emerging Market Bond Index) is JP Morgan's index of dollar-denominated
return given its risk level as measured by its beta. sovereign bonds issued by a selection of emerging market countries. The Global
Diversified limits the weights of countries with larger debt stocks by only including
Beta measures the historical market risk of a portfolio or the volatility of a portfolio a specified portion of these countries' eligible current face amounts of debt
relative to an underlying index over a defined historical period of time. outstanding.
Growth-oriented refers to areas of the market more likely to realize high earnings ICE BofA US Corporate Index, which tracks the performance of US dollar denominated
growth in the future and likely trade at a higher price relative to their earnings than investment grade rated corporate debt publicly issued in the US domestic market.
the broader market.
Value-oriented refers to areas of the market less likely to realize earnings high Risk Considerations
growth in the future and likely trade at a lower price relative to their earnings than All investing is subject to risk, including the possible loss of the money you invest.
the broader market. Equity securities are more volatile than bonds and subject to greater risks. Dividends
The “right side of disruption” refers to companies that in our view are aligned with are not guaranteed and a company’s future ability to pay dividends may be limited.
key secular growth trends and/or are creating new innovative solutions. Bonds are subject to interest rate, price and credit risks. Prices tend to be inversely
Green economy refers to investments leading the climate transition. affected by changes in interest rates. Typically, when interest rates rise, there is a
Equity risk premia refer to the excess return earned by an investor when they invest in corresponding decline in the market value of bonds.
the stock market over a risk-free rate. Investments in fixed income securities are subject to the risks associated with debt
TINA stands for There Is No Alternative. securities including credit and interest rate risk.
TARA stand for There Are Reasonable Alternatives. Investments in foreign securities entail special risks such as currency, political,
economic, and market risks. These risks are heightened in emerging markets.
Speculative-grade fixed income refers to high yield fixed income.
Investments in commodities may be affected by changes in overall market
Duration measures the sensitivity of the price of a fixed income investment to a movements, commodity index volatility, changes in interest rates or factors affecting
change in interest rates. a particular industry or commodity.
Short duration refers to a bond with a small amount of time to maturity. High-yield, lower-rated securities involve greater price volatility and present greater
Treasuries refers to US Treasury debt obligations. credit risks than higher-rated fixed income securities.
Inflation-adjusted yields refer to the measure of return that takes into account the Private equity investments are speculative, highly illiquid, involve a high degree
time period's inflation rate. of risk, have high fees and expenses that could reduce returns, and subject to the
Innovation-oriented equities refer to companies that offer innovative solutions and possibility of partial or total loss of fund capital; they are, therefore, intended for
are in line with long-term secular growth trends, such as technological innovation, experienced and sophisticated long-term investors who can accept such risks.
environmental sustainability, future health care, and the new-age consumer. Alternative Investments often engage in leverage and other investment practices
Liquid alternatives are alternative mutual funds that often have characteristics that are extremely speculative and involve a high degree of risk. Such practices may
similar to hedge funds but are public vehicles that can be traded easily. increase the volatility of performance and the risk of investment loss, including the
loss of the entire amount that is invested. There may be conflicts of interest relating
Green bonds are fixed income investments with proceeds used to finance projects to the Alternative Investment and its service providers, including Goldman Sachs and
with dedicated environmental impact its affiliates. Similarly, interests in an Alternative Investment are highly illiquid and
GDP stands for gross domestic product and refers to the value of finished goods and generally are not transferable without the consent of the sponsor, and applicable
services produced within a country's borders over one year. securities and tax laws will limit transfers.
Median return is the middle return in a sorted list of each individual security's return. An investment in real estate securities is subject to greater price volatility and the
Risk premia refer to the amount by which the return of a risky asset is expected to special risks associated with direct ownership of real estate.
outperform the known return on a risk-free asset. Hedge funds and other private investment funds (collectively, “Alternative
Leverage ratio is a financial measurement that assesses the ability of a company to Investments”) are subject to less regulation than other types of pooled investment
meet its financial obligations. vehicles such as mutual funds. Alternative Investments may impose significant
fees, including incentive fees that are based upon a percentage of the realized
Interest coverage ratio is a measurement used to determine how easily a company and unrealized gains and an individual’s net returns may differ significantly from
can pay interest on its outstanding debt. actual returns. Such fees may offset all or a significant portion of such Alternative
Drawdown is a peak-to-trough decline during a specific period for an investment, Investment’s trading profits. Alternative Investments are not required to provide
trading account, or fund. periodic pricing or valuation information. Investors may have limited rights with
Low quality companies would rank low based on low return on equity (LOE), high respect to their investments, including limited voting rights and participation in the
leverage or debt to equity, and unstable earnings. management of such Alternative Investments.
German 10Y is a bond that reflects the yield received on government bonds issued by The above are not an exhaustive list of potential risks. There may be additional risks
the German government maturing in 10 years. that should be considered before any investment decision.
Spain 10Y is a bond that reflects the yield received on government bonds issued by General Disclosures
the Spanish government maturing in 10 years. The views expressed herein are as January 19, 2023 and subject to change in
US 10Y Treasury is a bond that reflects the yield received on government bonds the future. Individual portfolio management teams for Goldman Sachs Asset
issued by the United States government maturing in 10 years. Management may have views and opinions and/or make investment decisions that,
United Kingdom 10Y is a bond that reflects the yield received on government bonds in certain instances, may not always be consistent with the views and opinions
issued by the UK government maturing in 10 years. expressed herein.
Italy 10Y reflects the yield received on government bonds issued by the Italian THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY
government maturing in 10 years. JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR
UNLAWFUL TO DO SO.
US 2Y Treasury is a bond that reflects the yield received on government bonds issued
by the United States government maturing in 10 years. This material is provided for informational purposes only and should not be
construed as investment advice or an offer or solicitation to buy or sell securities.
ICE BofA US High Yield Index value, which tracks the performance of US dollar This material is not intended to be used as a general guide to investing, or as a source

Goldman Sachs Asset Management INVESTMENT IDEAS 2023 | 15

of any specific investment recommendations, and makes no implied or express Union whose official currency is the Euro, subject to direct prudential supervision
recommendations concerning the manner in which any client’s account should or by the European Central Bank and in other respects supervised by German Federal
would be handled, as appropriate investment strategies depend upon the client’s Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufischt,
investment objectives. BaFin) and Deutsche Bundesbank.
Prospective investors should inform themselves as to any applicable legal Switzerland: For Qualified Investor use only – Not for distribution to general public.
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The Global Industry Classification Standard (“GICS”) was developed by and is the Instrument 04/0250; regulated by the Securities and Futures Commission of Hong
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event shall MSCI, S&P, any of their affiliates or any third party involved in making
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16 | INVESTMENT IDEAS 2023 Goldman Sachs Asset Management

Exchange Law by Goldman Sachs Asset Management Co., Ltd.
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© 2023 Goldman Sachs. All rights reserved. Date of First Use: January 19, 2023.
303206-OTU-1729696.
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