The GMO Liability-Driven Systematic Fixed Income Strategy is built on the foundation of GMO’s Systematic Investment Grade Credit Strategy and applied to the long-dated corporate credit benchmark. This can be customized to a client’s specific liability benchmark and is currently managed against the Bloomberg U.S. Long Credit Index.
The Systematic Investment Grade Credit Strategy is an active corporate credit strategy that seeks to generate alpha by allocating to sources of risk premium through factor-based models for credit selection. The Strategy allocates to measures of value, quality, and momentum captured through proprietary fair value models, measures of changes in default risk, and momentum signals derived from credit and equity assets. ESG factors are considered a component of the quality pillar at GMO and the portfolio is managed to target an overall ESG profile that is higher than that of the LDI mandate’s specific benchmark. Risk is managed through quantitative portfolio construction methods that control for overall benchmark spread, duration, and risk characteristics.
For the purposes of liability-driven investment solutions, the credit component can be systematically complemented with other fixed income capabilities (e.g., high yield, emerging market credit, or rates and currencies). The portfolio can be customized to any benchmark, including those that are ESG-aware. Further, a collection of building blocks (including ESG-related components, rating composition or tolerance, and balanced exposure between investment grade and high yield sectors) can be applied in various ways to meet the client’s liability targets.