Legendary value investor’s firm launches new fund targeting ‘quality’ stocks


Legendary value investor launches ETF… but it's not a value fund

Legendary value investor Jeremy Grantham is betting on a special caliber of stocks with his firm’s first active ETF: the GMO U.S. Quality ETF.

And he put GMO partner Tom Hancock in charge of it.

“There’s a lot more interest in active ETFs than there was even a few years ago,” Hancock told CNBC’s “ETF Edge” this week. “Coming from our clients, a lot of them are really excited about investing in ETFs. Of course, there are the tax advantages. But even amongst our institutional clients, just the ease of trading them is pretty material.”

Hancock says the new ETF is built around companies that can sustainably deploy capital and high rates of return, with a focus on technology, health care and consumer staples.

According to GMO’s website, as of November 17th, the ETF’s top holdings include Microsoft, UnitedHealth and Johnson & Johnson.

“[These companies] can do things competitors can’t. Moats around their business. They have strong balance sheets,” he said. “These are battleship companies that are going to remain relevant and important going forward.”

Yet, the stocks’ performance is mixed so far this year. Microsoft is up almost 54% so far this year. Shares of UnitedHealth are virtually flat while Johnson & Johnson is down more than 15%.

‘Better chance at outperformance’

ETF Store President Nate Geraci sees active ETFs as natural evolution in the industry.

“If you think of an active manager attempting to generate after tax alpha, the ETF wrapper helps lower that hurdle. It offers a better chance at outperformance,” Geraci said.

He adds ETFs can give active managers a better chance at long-term success.

Since its Wednesday launch, the GMO U.S. Quality ETF is up less than a half a percent.