Industry Updates

Jeremy Grantham's GMO to launch first ETF

GMO files to issue active fund that invests in quality US stocks

Lucy Brewster

Jeremy Grantham of GMO

Famed investor Jeremy Grantham’s firm GMO is set to launch its first ETF, broadening its product line-up as demand for ETFs outpaces traditional mutual funds.

The proposed actively-managed ETF will invest in US quality stocks, according to a prospectus the firm filed on 21 August with the SEC.

Boston-based GMO, which manages $58.8bn assets under management (AUM), as at 30 June, will not manage the fund relative to any securities benchmark or index, according to the filing.

ETFs are taking market share from mutual funds thanks in part to the fact they are easier to trade than mutual funds and have other tax benefits. Investors poured $33bn into US-listed ETFs in May, according to researcher Morningstar, while withdrawing $53bn out of mutual funds, excluding money market funds.

The 26-year-old GMO, currently offers more than 20 mutual funds. 

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

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 Global Financial Crisis of 2008.

Most recently, in a Bloomberg interview on 17 August, he forecasted a recession into next year because of the Fed’s hiking of interest rates.

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