A strong management team and sound investment process underpin GMO U.S. Quality ETF's Morningstar Medalist Rating of Gold. The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The management team's considerable industry experience drives a High People Pillar rating for the strategy. The strategy's investment approach stands out and earns an Above Average Process Pillar rating.  Momentum exposure is attributed to holding stocks currently on a winning streak and selling those that are on a downtrend. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy's parent organization earns the firm an Above Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

Microsoft

Alphabet

Johnson & Johnson

UnitedHealth Group

Oracle

Texas Instruments

Apple

KLA-Tencor

Coca-Cola

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. GMO U.S. Quality ETF earns an Above Average Process Pillar rating. 

The main contributor to the rating is the firm's five-year retention rate of 90% over the period. The parent firm's superior risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.4 stars, also contributes to the process. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 53%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup.

 This strategy owns more growth stocks than its peers in the Large Blend Morningstar Category. But in terms of size exposure, it does not have much of a bias and resembles the typical portfolio. Examining additional factor exposure, this strategy has consistently had exposure to high-momentum stocks compared with Morningstar Category peers over the past few years. Momentum approaches bet that rising stocks will continue to rise and that lagging stocks will continue to lag. In recent months, the strategy was more exposed to the Momentum factor compared with its Morningstar Category peers as well. This strategy has also tilted toward low-quality stocks, companies with higher financial leverage and lower profitability over peers in recent years. Such positions do not tend to provide much ballast for a portfolio. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. Additionally, the managers have consistently taken on more risk, demonstrated by higher volatility exposure than peers. This contributes to a higher-risk, higher-reward approach. In this month, the strategy also had more exposure to the Volatility factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in healthcare and technology relative to the category average by 12.9 and 5.3 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and energy, underweight the average by 5.8 and 3.9 percentage points of assets, respectively. The portfolio is positioned across 36 holdings and its assets are more dispersed than peers in the category. In particular, 42.3% of the strategy's assets are concentrated in the top 10 fund holdings, as opposed to the typical peer's 49.5%.

Above Average

Process

GMO U.S. Quality ETF earns a High People Pillar rating. The main contributor to the rating is the firm's five-year retention rate of 90%. The portfolio managers' outperformance at the funds they run, as measured by their combined three-year manager excess returns, also bolsters the rating. 


Anthony Hene, the longest-tenured manager on the strategy, boasts over 25 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 4.5 stars, demonstrating impressive risk-adjusted performance. Anthony Hene has an experienced backdrop of support. The three listed managers boast 24 years of average listed portfolio management experience. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

High

People

GMO's distinct research-driven culture remains at the heart of the firm, while improved personnel and asset stability builds confidence. The firm merits an Above Average Parent rating.
A longtime commitment to a unique, valuation-based investing approach sets GMO apart, as does its investment teams' discipline, analytical rigor, and high level of average experience. The firm publishes seven-year asset-class forecasts, updated monthly, alongside regular market commentary, allowing investors to gain insight into the thinking that informs the positioning calls of managers across the franchise. GMO's bold, and often contrarian, calls have produced mixed results. The firm, however, markets its strategies almost exclusively to institutional clients rather than a broader retail audience, partially in recognition of the patience needed to benefit from its style. 
CEO Scott Hayward has set the firm on better footing since taking over in 2017. After the firm had suffered from a spate of personnel departures, including its previous CEO, and steep outflows in 2016, Hayward cut two ill-fitting teams, acquired boutique Japanese equity manager Usonian, and hired a head of investment risk by the end of 2020. The firm has stabilized since then, with manager retention rising precipitously and with fund closures falling markedly.

Parent

GMO US Quality ETF

QLTY is an actively managed fund that focuses on equities of high-quality US companies. The funds investments may include companies of any market capitalization.

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News for GMO US Quality ETF ETF (QLTY)