In this episode of "Behind the Ticker," host Brad interviews Kim Mayer from GMO. Kim has been with GMO for over 18 years, starting his career on the sell side at Morgan Stanley before transitioning to the buy side. He currently holds a dual role at GMO as a portfolio strategist and covers several sectors including luxury goods, beer, spirits, and retail.Kim discusses the launch of GMO's QLTY ETF, which marks GMO's strategic entry into the ETF market. He explains how the ETF aims to make high-quality investment strategies accessible to a broader audience through a focus on U.S. equities. The approach combines both qualitative and quantitative methods to ensure a robust selection process that emphasizes quality and proper valuation.The episode also delves into Kim's personal interests, highlighting his love for activities on water, reflecting his move from New York to Boston. Overall, the podcast provides insights into GMO's investment philosophy and operational strategies, as well as offering a glimpse into the personal life of one of its key figures.
Deeper Dive: Insights from the Full Conversation
Beyond the headline strategy, the full conversation between Brad and Kim Mayer covered several additional themes worth highlighting for advisors and investors.
On Process and Philosophy
But he came up with some good identifiers and initially GMO used that in our equity practices by practicing a form of quality adjusted value. We launched this strategy 20 years ago and have kept that focus on valuation. I think that's an important differentiator because there's plenty of different ways to get quality into a portfolio today. But to get back to your original question, it's not a clone of the existing strategy. So the flagship quality strategy, which is still a mutual fund and separately managed accounts, is a global opportunity set.
Today, I have on Kim Mayer, he is a portfolio strategist over at GMO, and we're here to talk about their newly released Quality ETF, Ticker QLTY. It is a US-focused, active ETF that is looking for obviously quality, as well as attractive valuations. They've been running a similar strategy for many years in a mutual fund wrapper, and this is their first ETF over at GMO. We talk about the difference between quality and other quality ETFs that are more indexed focused.
Market Context and Positioning
And we're going to look at a bunch of things, but we're going to focus mostly on valuation as we do that process. And so what we seek to deliver is a company is a portfolio that's comprised of the very highest quality companies, but screening out those companies that are trading at unrealistic valuations. Because I think even with quality companies, people will tell you that quality wins over time, but what our research shows you is you can do substantially better in terms of delivering returns across periods and can actually pretty significantly increase that downside protection and return signature as well by combining quality and valuation.
Just because I think people are concerned generally with the overall risks that equity investors face today, and quality has shown to be a good defensive way to get equity exposure over time. And finally, I think, you know, it is our focus on valuation that means that we're not dependent on a growth regime being in place to be able to deliver strong performance or a value regime being in place. The last couple of years have shown that very nicely, you know, 2022, very much a value driven year, 2023, very much a growth driven year.
Step three would be, or I guess, difference three would be around portfolio construction. So, Qual, SPHQ, they're not willing to look that different from the benchmark. And so, they're going to be constructed in a venture, in a sector neutral standpoint. So, that means they're forced to own the highest quality real estate company, the highest quality materials company. We don't think that they're already. So, we don't own those. And so, you know, those contend to be riskier areas of the market.
Notable Insights
"We talk about the difference between quality and other quality ETFs that are more indexed focused."
"Yeah, and so GMO, you know, we're not the biggest shop in the world."
Key Takeaways
- He currently holds a dual role at GMO as a portfolio strategist and covers several sectors including luxury goods, beer, spirits, and retail.Kim discusses the launch of GMO's QLTY ETF, which marks GMO's strategic entry into the ETF market.
- He explains how the ETF aims to make high-quality investment strategies accessible to a broader audience through a focus on U.S.
- Overall, the podcast provides insights into GMO's investment philosophy and operational strategies, as well as offering a glimpse into the personal life of one of its key figures.
What This Means for Advisors
For financial advisors evaluating options for client portfolios, this conversation with Kim Mayer highlights important considerations around quantitative investing. Understanding the strategy behind each fund—not just the ticker—helps advisors make more informed allocation decisions and better communicate the rationale to clients.
The themes of quantitative investing and portfolio construction discussed in this episode are particularly relevant in the current market environment, where advisors are increasingly looking for differentiated solutions that go beyond traditional benchmarks.
Listen to the Full Episode
This article is based on an episode of Behind the Ticker, hosted by Brad Roth, Founder and CIO of THOR Financial Technologies. For the full conversation with Kim Mayer, including additional nuances and details, listen on Spotify, Apple Podcasts, or watch on YouTube.