Grantham Mayo Van Otterloo is expanding its footprint in the $10 trillion ETF marketplace by going back to its roots.
The Boston-based money manager — which has become known for a valuation-driven investment process since its establishment in 1977 — is debuting the GMO U.S. Value ETF (ticker GMOV) and GMO International Value ETF (GMOI) on Tuesday. The offerings have expense ratios of 0.5% and 0.6%, respectively.
The new entries will mirror two existing mutual funds from GMO: the roughly $561 million GMO U.S. Opportunistic Value Fund and the $429 million GMO International Opportunistic Value Fund.
The launch comes as the value approach is underperforming growth shares for a second straight year, but by a diminishing margin in part fueled by expectations that Federal Reserve interest-rate cuts will boost companies with weaker balance sheets costs.
The strategy of scooping up stocks that look cheap has delivered double-digit returns this year. Yet it's been overshadowed by the boom in tech-driven growth investing thanks to the Magnificent Seven stocks.
While excitement over artificial intelligence has reached fever pitch, there's good news for value proponents: The resilient U.S. economy has also spurred gains across once-unloved pockets of the equity market of late.
"Obviously, the Mag 7 over the past few years is a big reason for the relative performance gap," said George Cipolloni, a portfolio manager at Penn Mutual Asset Management. "The value-versus-growth trend is highly dependent upon the level of interest rates now and moving forward."
Appetite for momentum bets will be tested this week as the tech megacaps kick off earnings announcements. Mag-7 member Alphabet Inc. is due to report Tuesday, followed by Microsoft Corp., Meta Platforms Inc., Apple Inc. and Amazon.com Inc. later in the week.
The value sector's underperformance isn't deterring GMO, which says so-called deep value stocks are one of its highest-conviction asset allocations. The approach is to target the stocks that GMO assesses are the cheapest 20% relative to their worth, regardless of how the firms are categorized by index providers.
Ben Inker, co-head of asset allocation at GMO, says value stocks have never been cheaper in developed non-U.S. markets, going back to the 1980s.
