Famed Investor Jeremy Grantham to Launch Firm’s First ETF

Famed investor Jeremy Grantham’s investment firm GMO is planning its first ETF, broadening its product lineup as demand for exchange-traded funds outpaces traditional investments like mutual funds. 

The proposed actively managed fund will invest in U.S. quality stocks, according to a prospectus the firm filed on Aug. 21 with the SEC. Boston-based GMO, which managed $58.8 billion as of June 30, won’t manage the fund relative to any securities benchmark or index, according to the filing.  

ETFs are taking market share from mutual fund thanks in part to the fact they are easier to trade than mutual funds and have other tax benefits. Investors poured $33 billion into U.S.-traded ETFs in May, according to researcher Morningstar Inc., while at the same time, they pulled $53 billion out of mutual funds, excluding money market funds.  

The 46-year-old GMO, currently offers more than 20 mutual funds. 

The firm said in an emailed statement that the decision to launch an ETF was “driven by demand from the intermediary and wealth management space.”  

Jeremy Grantham’s GMO Arrives Late to ETF Industry 

The firm is coming late to a competitive industry that is dominated by a few huge firms and marked by pressure to constantly cut fees. GMO operates as a collection of investment teams that work with institutions, family offices and wealth managers. The investment firm turns to ETFs as both retail investors and advisors are increasingly putting their money into the asset class and demanding a variety of products.  

To determine whether the company will fit into its “high quality” metric and be picked for the fund, GMO will consider both “systemic factors” such as profitability and leverage, as well as “judgmental factors” that include GMO’s assessment of the firm’s competitive advantage and growth opportunities. The fund can also at times invest in over-the-counter derivatives and ETFs, according to the prospectus. The firm has no fees listed yet in its filing.  

Grantham gained his street credibility as an investor for forecasting the dot-com crash in 2001 and the financial crisis of 2008. Most recently, in a Bloomberg interview from Aug. 17, he forecasted a recession into next year because of the Fed’s hiking of interest rates. 

Active ETFs, which include 1,147 funds with $438 billion under management, have been picking up steam in the past year as ETF issuers increasingly try to use novel strategies to beat broad indexes. Active ETFs grew at a rate of 14% the first half of this year, while passive funds grew only 3%, according to Morningstar.  

Contact Lucy Brewster at [email protected]