GMO Equity Dislocation Investment Fund

The GMO Equity Dislocation Fund is a systematic market neutral strategy that launched in Q3 2020 specifically to take advantage of the significant dislocation in Value stocks vs. Growth stocks. GMO has a proven track record of identifying and profiting from market dislocations, with the firm successfully building a succession of opportunistic strategies that made money from the bursting of a bubble. The first fund was launched in 1992 when they saw a bubble in UK branded goods companies (long small cap value vs. short large cap growth). Another fund was launched in 2000 to profit from the TMT bubble, whilst a third one was launched in mid 2000s (short junk vs. long quality). The Equity Dislocation strategy is GMO’s latest launch. The fund is a diversified global market neutral strategy (500 names evenly split long and short), with the largest positions typically 25-75bps, that intentional risk-control for sector and industry bets (+/-10%), whilst taking small country bets (+/-3%). The basic metric that is used to define ‘Value’ on both the short and long side is GMO’s proprietary Dividend Discount Model, a forward looking DCF model based on the ROC for each company and the forward-looking estimate for how the ROC is going to revert slowly or quickly to the average. Security selection also control for ‘Quality’, meaning that they don’t have to go down the quality spectrum on the long side (the adjusted ROE of longs is typically higher than the ROE of shorts). The resulting portfolio is very diversified (500 names evenly split long and short with the largest positions typically 25-75bps), and has 90% active share vs. MSCI ACWI Value/Growth and an ex-ante beta of around 0.