New GMO Research on Value’s “Lost Decade”

A new study from the research firm Grantham Mayo Van Otterloo (GMO) shows that the erosion of the value premium over the last decade was due to “changes in relative valuations that favored growth over value, but now value stocks are priced attractively.” This according to an article in Advisor Perspectives. Relative valuations, the article explains, “refer to the difference in metrics, such as price-to-book ratios, between value and growth stocks.” The article reports that… Read More

GMO: Investor Strategies are Solving the “Wrong Problem”

A recent GMO client letter urges investors to “stop obsessing over their portfolios and pay more attention to factors beyond their holdings that are more difficult to measure” or risk missing their goals. This according to an article in Institutional Investor. The letter–written by the firm’s head of asset allocation, Ben Inker–suggests that investors tend to overlook assets and liabilities outside of their portfolios because they lack “quantitatively well-estimated characteristics” they can use to measure… Read More

GMO’s Montier on the Dual Economy

A Financial Times article offers an in-depth discussion of GMO’s James Montier’s thesis that the U.S. is moving into a “dual economy where productivity growth is reasonable in some sectors, and totally absent in others.” The article explains that the push by corporate America to make profits has been “replaced with the desire to achieve growth at any cost,” and this often involves using loss-leading strategies where products or services are offered free of charge… Read More

GMO Team Member Says Stocks are “Obscenely Overvalued”

In a paper published earlier this month, GMO’s James Montier argues that the stock market is in the grip of a “cynical bubble,” according to an article in Bloomberg. Montier doesn’t share the optimism of his colleague, Jeremy Grantham, who recently expressed his view that the market could be headed for a late bubble “melt-up” the article says. In the paper, Montier writes, “Those buying the asset in question don’t really believe they are buying… Read More

Morningstar Survey Results for Long-Term Stock and Bond Returns

A recent Morningstar article outlined the intermediate-term (10-year) market return assumptions of a group of industry leaders that responded to a recent survey: John Bogle, founder of Vanguard: 4% stock return, 3% bond return over the next 10 years. Bogle asserts that “future returns from the major asset classes will be muted. GMO: -4.4% returns for U.S. large caps over next seven years; 2% real returns for emerging market equities. The firm, the article points… Read More

GMO: Don’t Blame Pricey Market Solely on Tech

A paper published last month by GMO argues that the market’s current elevated valuations should not be blamed solely on the technology sector. Still, it says the market is expensive “no matter how you cut it.” Here are some highlights; The paper provides data showing how the shift to “higher-multiple sectors” only accounts for a portion of today’s pricier market (P/E 10 is also known as the Shiller PE or cyclically adjusted price-earnings-ratio): GMO suggests… Read More

GMO Paper Says Indexing the S&P 500 is Risky

A comprehensive  white paper published by GMO’s Matt Kadnar and James Montier in August—arguing against a predominantly index-focused investment strategy–was condensed in a recent MarketWatch article. The article quotes the authors: “A decision to allocate to a passive S&P 500 index is to say that you are ignoring what we believe is the most important determinant of long-term returns: valuation. At this point, you are no longer entitled to refer to yourself as an investor.… Read More

Natural Resource Stocks that Show Promise

The short-term volatility in natural resource stocks can leave investors skittish, especially given their movement with either commodity or equity markets. But Jeremy Grantham and Lucas White of global investment management firm GMO published a white paper that offers some arguments in favor of including this asset class in a balanced portfolio: Growing demand and finite supply of natural resources; Diversification they can provide, as evidenced by low correlations with broader markets over long periods;… Read More

GMO: Don’t Bail on Hedge Funds

The fall in rates since the financial crisis has benefited stocks and other long-duration assets while hurting short-duration assets such as hedge funds, says GMO’s Ben Inker. “The characteristics that made hedge funds disappoint,” he says, “may well prove a blessing if discount rates start to rise.” Inker argues that today’s high returns and advanced U.S. equity valuations are not sustainable because they “represent an increase in the present value of an asset without any… Read More

Curb Your Enthusiasm

Richard Turnill, BlackRock’s chief global investment strategist, advises investors to “curb their enthusiasm.”  Turnhill commented in BlackRock’s most recent weekly market commentary: “We see a global portfolio made up of 60% equities and 40% fixed income producing annual returns of just 3.3% in U.S. dollars before inflation over the next five years.” Turnhill speaks well of foreign stocks, emerging market stocks, and private equity, saying “our international equity return estimates are now above the long-term… Read More