Jeremy Grantham’s GMO Files for First ETF to Track Quality Stocks

2023-08-22 02:48

Grantham Mayo Van Otterloo is planning to break ground in the $7.4 trillion exchange-traded fund industry. The $59

Grantham Mayo Van Otterloo is planning to break ground in the $7.4 trillion exchange-traded fund industry.

The $59 billion Boston-based investment company co-founded by Jeremy Grantham filed an application with US regulators for its first ETF, dubbed the GMO U.S. Quality ETF, on Monday. The actively-managed fund would trade under the ticker QLTY and invest in stocks that GMO “believes to be of high quality,” the filing details.

GMO’s push into ETFs is driven by demand from the intermediary and wealth management space, according to the firm. GMO joins a growing list of asset managers launching ETFs in recent years, as the vehicle continues to absorb cash while money drains from mutual funds. But with $7.4 trillion in assets spread across more than 3,200 US-listed ETFs, GMO potentially faces an uphill battle in attracting attention in an already saturated market. Not to mention, there’s around $58 billion sitting in so-called smart beta ETFs that track the quality factor, Bloomberg Intelligence data shows.

“We’re clearly seeing every money manager out there realize they need a strategy in an ETF wrapper,” said Todd Sohn, ETF strategist at Strategas. “Their success will be defined by their performance ability as well as if they can succeed in the marketing aspect. That is, why allocate to their actively managed product versus a standard smart-beta strategy?”

GMO co-founder Grantham is one of Wall Street’s most well-known bears, famed for his gloomy forecasts. The investor is sticking to his knitting amid this year’s tech resurgence, warning that the pernicious effects of rising interest rates will drag the US economy into a recession.

While bears have been battered by this year’s tech-fueled stock gains, following the quality factor — which screens for shares based on metrics such as return on equity and leverage — has delivered outperformance. The largest quality-focused ETF, the roughly $31 billion iShares MSCI USA Quality Factor ETF (QUAL), has returned 19% so far in 2023 versus the S&P 500’s 14% gain.

Unlike index-tracking products such as QUAL, the new QLTY ETF would be actively managed by a GMO team including Thomas Hancock, Ty Cobb and Anthony Hene, according to the prospectus. Fees are not yet listed.