Grantham's GMO Issues First ETF as Demand Rises

Jeremy Grantham, the famed investor and chairman of $58 billion global asset manager GMO, on Wednesday launches his firm's first exchange-traded fund, the GMO U.S. Quality ETF (QLTY), as once-hesitant investors now clamor for ETFs over traditional mutual funds.

While GMO has over two dozen traditional mutual funds, QLTY, which is based on its quality fund strategy, is the firm’s first foray into ETFs. 

According to QLTY portfolio manager Tom Hancock, when ETFs first came on the scene, many long-term investors kept their distance, as they saw them as short-term trading products.  

However, more recently, investors are realizing the advantages of ETFs for long-term investors, such as tax efficiency, and many of GMO’s clients have begun seeking out ways to access its strategies through ETFs.

GMO's Quality Fund Strategy 

Even more attractive than its strong performance, Hancock emphasized the benefit of Quality Fund’s comparatively low volatility. GMO focuses on investing over the long term, and Hancock said that offering a less-volatile option helps investors manage that element. 

“We try to see where the markets are going to be five to 10 years from now and invest there and don’t worry about the short term,” said Hancock, in an interview.

Outperformance From QLTY’s Predecessor 

From its inception in February 2004 until the end of September, The Quality Fund has delivered an annualized total return of 9.4%, net of fees, a favorable comparison to the S&P 500’s 9.1%. 

Achieving higher returns than the S&P 500 over the long term is a rare feat among fund managers. Fewer than 10% of U.S. stock funds achieved outperformance over 10-, 15- and 20- year periods as of the end of 2022, according to the SPIVA report card.

QLTY uses a similar investing process to – and has the same portfolio managers as – the $7.5 billion GMO Quality mutual fund. The only difference is the ETF will be invested 100% in U.S. equities compared to 80%-90% for the fund. According to Hancock, it’s fair to look at the Quality Fund to get an idea of the track record of the strategy to be employed by QLTY.  

While they haven’t announced any plans for specific ETFs in the future, Hancock said this launch will not be a one-off.

Contact Gabe Alpert at [email protected].