The legendary value investor Jeremy Grantham is betting on stocks of a special kind with his company’s first active ETF: the GMO US Quality ETF.
And he hired GMO partner Tom Hancock to do it.
“There is a lot more interest in active ETFs than there was a few years ago,” Hancock told CNBC’s “ETF Edge” this week. “Many of our customers are very excited about investing in ETFs. Of course there are the tax advantages. But even for our institutional customers, the simplicity of trading is of great importance.”
Hancock said the new ETF targets companies that can deploy capital sustainably and generate high returns, with a focus on technology, healthcare and consumer staples.
According to GMO’s website, as of November 17, the ETF’s largest 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 will remain relevant and important well into the future.”
Still, the performance of stocks so far this year has been mixed. Microsoft is up nearly 54% so far this year. Shares of UnitedHealth are virtually flat, while Johnson & Johnson is down more than 15%.
Nate Geraci, president of the ETF Store, sees active ETFs as a natural evolution of the industry.
“If you think about an active manager trying to generate after-tax alpha, the ETF wrapper helps lower that hurdle. It offers a better chance of outperformance,” Geraci said.
He adds that ETFs can offer active managers a better chance of long-term success.
Since its launch on Wednesday, the GMO US Quality ETF is up less than half a percent.