2 Funds for Tapping Into GMO's Worldview
Although both funds represent GMO's asset-allocation views well and earn Silver ratings, GMO Benchmark-Free is a pure play on the firm's views, while GMO Global Asset Allocation is more benchmark-conscious.
Leo Acheson: Both GMO Benchmark-Free (GBMFX) and GMO Global Asset Allocation (GMWAX) are managed by GMO's asset-allocation team, which is led by Ben Inker. The team is well known for its bold seven-year asset-class forecast, which they derive from their outlooks for current market valuations and profit margins as well as the belief that they will inevitably revert to their long-run averages.
Both funds invest across the globe in equities, fixed income, and alternatives. Once GMO makes its forecasts, it sticks with those views. Their patience, over time, has paid off.
In terms of differences, GMO Benchmark-Free has fewer constraints and is more of a pure play on GMOs asset-class views. The managers aim to earn 5% return above inflation while keeping standard deviation within 5% to 10%. That's about the only constraint the fund has. Meanwhile, GMO Global Asset Allocation implements the team's asset-allocation views in more of a benchmark-conscious way.
The strategy aims to beat a blended benchmark of 65% MSCI All Country World Index and 35% Barclays U.S. Aggregate Bond Index by at least two percentage points annualized, with 3% to 5% tracking error. As a result, the portfolio is not as pure of a representation of GMO's views. So, for instance, GMO currently has a bleak outlook for expected returns from equities.
As a result, at the end of the first quarter of 2015, GMO Benchmark-Free held just 40% of assets in equities, which is at the low end of its typical range, while GMO Global Asset Allocation held 52% in stocks. The difference is that GMO felt compelled to hold a higher equity allocation in Global Asset Allocation to ensure that tracking error relative to the benchmark stays within the targeted range.
Overall, both funds are a solid option and draw upon a well-resourced and proven team at GMO; however, investors who want exposure to GMO's highest-conviction portfolio should stick with GMO Benchmark-Free.
For retail investors looking to access these strategies, Wells Fargo offers Wells Fargo Advantage Absolute Return (WARAX), which earns a Bronze rating, and Wells Fargo Advantage Asset Allocation (EAAFX), which earns a Neutral rating.
Leo Acheson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.