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While equity styles go in and out of favor, high-quality equities, resilient to economic headwinds and market drawdowns, have proven to be a stable group of exceptional businesses ideally suited to compounding capital.
In 2004, GMO launched the Quality Strategy with the mandate to own attractively valued stocks within the quality universe. The strategy’s creation was the culmination of decades of GMO research on quality business models. While its origins date back to GMO’s earliest days, our Quality process continues to evolve to ensure sustained relevance as well as our investment edge.
The GMO Quality Strategy is an ideal core equity holding that has delivered strong returns, stability, and risk mitigation for investors for 20 years and counting. In recent years, we’ve successfully extended our differentiated approach, which emphasizes the importance of valuation and style diversification within quality, to other universes, including defensive equity/absolute return, small caps, and global value.
How We Define a Quality Business
Suite of GMO Quality Strategies
Quality |
Quality Spectrum |
Small Cap Quality |
U.S. Quality |
International Quality |
|
|
Inception Date |
February 2004 |
October 2019 |
August 2022 |
July 2023 |
August 2024 |
|
Thesis |
Flagship long-only strategy, seeks to deliver superior return at lower volatility than the broader market |
Enhance risk mitigation by balancing Quality with a “junk” short ~175/75 |
Exploit the superior outperformance of quality stocks within small caps |
Sub-strategy of our flagship strategy, investing primarily in U.S. domiciled quality companies |
Sub-strategy of our flagship strategy, investing primarily in internationally domiciled quality companies |
|
Style |
Core | Defensive Equity, Absolute Return | U.S. Small Cap | Core | Core |
|
Common Benchmarks |
S&P 500, MSCI World |
50% MSCI ACWI/50% Cash, MSCI ACWI |
S&P 600 or other small cap index |
S&P 500 | MSCI World ex-U.S. |
|
Number of Positions |
40-50 | 40-50 long, 300+ short |
40-50 | 30-40 | 30-40 |
A Perfect Pairing for U.S. Large Cap
International Quality
With the U.S. stock market increasingly concentrated in just a handful of the largest companies, achieving true diversification can be a challenge. By targeting leading non-U.S. companies with established track records of historical profitability and strong fundamentals, the GMO International Quality Strategy offers investors a strategic complement to U.S. large cap that aims to withstand short-term volatility without sacrificing returns.
Read more about the merits of international quality investing.
Celebrating Three Years
Small Cap Quality
Since launching GMO Small Cap Quality in August 2022, our mission has remained steadfast: to uncover hidden gems among U.S. small cap companies by focusing on those with robust fundamentals, consistent profitability, and prudent capital management. Our approach, blending rigorous quantitative screening with hands-on fundamental research, has allowed us to build a concentrated portfolio of businesses that we believe can withstand short-term volatility and demonstrate exceptional growth potential over time.
Learn about the GMO Small Cap Quality Strategy.
Finding Exceptionalism in the U.S.
U.S. Quality
This U.S.-domiciled version of our flagship Quality Strategy offers investors access to the strong and diversified quality opportunity set in the U.S. without the scarcity premium that often accompanies non-U.S. quality equities.
Learn about the GMO U.S. Quality Strategy.
Key Team Resources
