GMO, a value-oriented firm co-founded by legendary investor Jeremy Grantham in 1977, on Nov. 15 launched its first ETF, the GMO U.S. Quality ETF.
The actively managed fund, which goes by the ticker QLTY, will invest in high-quality U.S. stocks while offering the benefits of the ETF structure, including tax efficiency, daily transparency and continuous liquidity, GMO said in a news release.
"Quality is nothing new at GMO, that's part of how we've invested — Jeremy's invested — since day one," said Tom Hancock, head of GMO focused equity and a portfolio manager of QLTY, in an interview, adding that GMO realized early on that quality companies — those that earn a sustainably high return on capital — can keep up with or beat the market over time "and they provide a lot less volatility."
While the ETF may be new, GMO has been managing a quality strategy in mutual fund and separate account formats for nearly two decades, Hancock said.
Though both the mutual fund — the $7.9 billion GMO Quality Fund — and the ETF are run by the same portfolio management team and have the same strategy, the key difference is that the ETF will invest solely in U.S. stocks, he said.
Asked what spurred GMO to launch an ETF, Hancock said it was "certainly client-driven." While GMO historically has been an institutional manager, "institutional clients these days includes a lot of very wealthy individuals, RIAs … family offices and such that are tax-aware," he said.
"And so, the tax-efficient aspect of ETFs has been a driving force behind that segment of our client base," Hancock said. "And even in the endowment, foundation, institutional world where they don't pay taxes, the convenience of trading ETFs frankly is pretty appealing as well."
He also pointed to the growth in actively managed ETFs in recent years.
"So, we manage an active strategy, it's not like a smart beta version of quality or anything," Hancock said.
"And I think a few years ago that would have been a little anomalous in an ETF and now that's a pretty big growth area."
The ETF was launched in partnership with the new Goldman Sachs ETF Accelerator, a digital platform that enables Goldman Sachs' clients to launch, list and manage ETFs quickly and efficiently, the release said.
"GMO has always been committed to offering innovative investment solutions in the implementation structures that best address the needs of our clients," Scott Hayward, GMO's chief executive officer, said in the Nov. 15 release. "The launch of our first ETF and potential future ETFs are a natural evolution of that commitment, meeting demand from the intermediary and wealth management channels."
As of Sept. 30, GMO, which serves institutions, financial intermediaries and families, had $58 billion in assets under management.
