The GMO 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 Bloomberg U.S Corporate Index. Risk is managed through quantitative portfolio construction methods that control for overall benchmark spread, duration, and risk characteristics.
GMO’s Systematic Credit engine offers a modular, flexible way of managing investment grade credit, allowing for a number of building blocks (including ESG-related components, rating composition or tolerance, and balanced exposure between investment grade and high yield) that can be applied in various ways to design a custom portfolio that meets the client’s objective. This capability applied to long duration benchmarks is part of solutions for liability driven investing at GMO. In addition to managing U.S. investment grade credit, our framework can be naturally extended to euro, global or other customized definitions of the global investment grade credit universe.