Asset manager GMO is launching its first-ever exchange-traded fund, with plans to focus on high-quality companies.
The fund, called the GMO U.S. Quality ETF, will invest in companies “that will deliver a high level of return on past investments and that will use cash flows to make investments with the potential for a high return on capital or to return cash to shareholders through dividends, share buybacks, or other mechanisms,” according to a document that GMO filed with the Securities and Exchange Commission.
The ETF will be managed by Thomas Hancock, head of GMO’s focused equity team, alongside portfolio managers Ty Cobb and Anthony Hene.
GMO’s debut in the ETF space comes as more asset managers seek to expand into the burgeoning wealth and retail markets. The market for individual investors has served as one of the strongest sources of growth for asset managers in the period following the Global Financial Crisis, according to a recent Casey Quirk report.
“GMO has always been committed to offering innovative solutions in the structures that best suit our clients,” a GMO spokesperson said in a statement. “Our extension into exchange-traded funds is a natural evolution of that commitment, driven by demand from the intermediary and wealth management space.”
The choice of strategy for the ETF reflects GMO’s favorable views on the quality factor, which encompasses companies with consistent earnings, low debt, and other metrics that reflect their financial strength. In March, GMO defended high-quality banks after the fall of Silicon Valley Bank. In July, GMO suggested that investors go long on high-quality stocks and short the low-quality ones in anticipation of a market downturn in the near term
A long-quality, short-junk portfolio produced an annualized return of 4 percent from 2005 to 2021, according to a GMO report last month.
