Legendary value investor Jeremy Grantham is betting on specialty stocks with his company’s first active ETF: the GMO US Quality ETF.
And he put GMO partner Tom Hancock in charge of this.
“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 clients are very excited about investing in ETFs. Of course there are the tax benefits. But even among our institutional clients, the sheer ease of trading them is quite substantial.”
Hancock says the new ETF is built around companies that can deploy capital sustainably and deliver high returns, with an emphasis on technology, healthcare and consumer goods.
According to GMO’s website, as of Nov. 17, the ETF’s top holdings include Microsoft, UnitedHealth and Johnson & Johnson.
“(These companies) can do things that competitors can’t do. They have strong balance sheets,” he said. “These are battleship companies that will remain relevant and important in the future.”
Still, the stock’s performance has been mixed so far this year. Microsoft is up almost 54% so far this year. Shares of UnitedHealth are essentially flat, while Johnson & Johnson is down more than 15%.
ETF Store President Nate Geraci sees active ETFs as a natural evolution in the industry.
“If you think about an active manager trying to generate after-tax alpha, the ETF wrapper helps lower that hurdle. It provides a better opportunity for outperformance,” Geraci said.
He adds that ETFs can give active managers a better chance of long-term success.
Since its launch Wednesday, the GMO US Quality ETF is up less than half a percent.