Investors who only want exposure to the best on the market have a new exchange-traded fund to add to their watchlist.
Boston-based GMO, headed by legendary investor Jeremy Grantham, has launched its first-ever ETF.
On November 15, the GMO US Quality ETF listed on the New York Stock Exchange, Arca, under the ticker “QLTY”. The actively managed ETF aims for above-average returns over time by selecting US stocks it deems to be of high quality.
Holdings in GMO’s quality stock-focused mutual funds include firms like Johnson & Johnson, Microsoft, Apple, and others.
GMO says QLTY is trying to capitulate and ride the wave of two 2023’s emergent megatrends that have shaped investing in 2023: burgeoning interest in actively managed ETFs and high-quality stocks, aka, profitable firms with strong balance sheets.
“Quality has a claim on being the most mispriced characteristic in the market over the last 100 years,” says GMO Co-Founder Jeremy Grantham. “Since we began researching quality in the 1980s, GMO has focused on finding companies with a consistent and enduring ability to deliver high returns on their investments.”
“Investing in quality businesses has won over time with lower risk,” said Tom Hancock, head of GMO-focused equity and portfolio manager of QLTY. “With our focus on valuation, we believe GMO’s quality strategy is truly for all markets.
Dire Warnings
Grantham, the founder and CEO of GMO, is particularly bearish on the economy.
He recently appeared on Bloomberg’s ‘Merryn Talks Money’ podcast, where he shared his dire prognosis for markets. Grantham forecasts the S&P 500, which is currently just over 4,500 points, will soon crash to below 3,000 points.
“If everything works out badly, which it sometimes does, I would not be amazed if it went to 2,000,” he added.
Grantham also questioned the inevitability of the United States.
“Don’t invest in the US,” he said, pointing to the nation’s $33 trillion debt crisis, elevated interest rate environment, unsustainably high yield levels, and the immense challenges in the real estate and mortgage markets.
Instead, he believes other mature markets, like Europe and Japan, will offer more dependable, albeit modest, returns going forward.
This may seem strange given that GMO’s first ETF is entirely focused on US stocks. However, Grantham still sees quality stocks like Coca-Cola as valuable entities. For him, the real danger zone is the hordes of small-cap zombie firms in the Russell 2000. With weak balance sheets and spiraling debt, they are the corporate walking dead.
Grantham’s words echo the advice of another famous investing giant – Warren Buffet, who consistently backs companies with low capital needs, strong balance sheets, and an enduring competitive advantage.
For value investors who also see the market through this lens, GMO’s new fund may seem like an obvious play. However, as in everything with investing, even quality stocks are subject to the whole market collapse. If Grantham’s dire prediction for the S&P comes to pass, almost all stock tickers will take a serious blow to their price, no matter their market cap.
The fund charges investors management fees equivalent to 50 basis points per annum.
This article was produced and syndicated by Wealth of Geeks.