Legendary Investor Firm Launches New Fund Targeting ‘Quality’ Stocks

Legendary value investor Jeremy Grantham is betting on a special caliber of stocks with his firm’s first active ETF: the GMO US Quality ETF.

And he entrusted the responsibility to Tom Hancock, GMO partner.

“There’s a lot more interest in active ETFs than there was a few years ago,” Hancock told CNBC’s “ETF Edge” this week. “From our clients, a lot of them are really excited about investing in ETFs. Of course, there are tax advantages. But even among our institutional clients, the sheer ease of trading them is quite important.

Hancock says the new ETF is built around companies that can deploy capital sustainably and high rates of return, with a focus on technology, healthcare and consumer staples.

According to GMO’s website, as of November 17, the ETF’s top holdings included Microsoft, UnitedHealth and Johnson & Johnson.

“(These companies) can do things their competitors can’t do. There are moats surrounding their businesses. They have strong balance sheets,” he said. “These are battleship companies that are going to remain relevant and important in the future.”

Still, stock performance has been mixed so far this year. Microsoft is up nearly 54% year to date. Shares of UnitedHealth are virtually flat while those of Johnson & Johnson are 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 barrier. It provides a better chance of outperformance,” Geraci said.

He adds that ETFs can give active managers a better chance of long-term success.

Since its launch on Wednesday, the GMO US Quality ETF is up less than half a percent.