| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | -0.82% | 9.05% |
GMO's Equity Dislocation Strategy delivered a 9.05% net return in H1 2026, significantly outperforming the 1.3% return of the value-growth spread proxy. The strategy's success was driven by strong stock selection and active rotation rather than broad value factor exposure. In Q1, markets showed concern over AI capital investment scale and geopolitical tensions, with Value outperforming Growth by 8.8% and the strategy returning 9.95% net. Q2 saw a reversal as optimism returned and Growth outperformed by 9.2%, but excellent stock selection, particularly in Korea, limited losses to just 0.82% net. Key contributors included Korean growth names like Samsung Electronics, SK Square, and LG Electronics, which added 4.0% to returns. Banks contributed 1.2% after stellar 2025 performance, though exposure was reduced following the rally. Software positions benefited from the SaaSpocalypse collapse, contributing 1.4%. The strategy demonstrated its ability to profit from AI disruption by targeting unsustainable valuations, with both long and short books generating alpha. Dynamic rotation, exemplified by Expedia adding nearly 2% through multiple position changes, remains central to the strategy's approach. With Value only modestly outperforming Growth year-to-date, significant opportunity remains.
The Equity Dislocation Strategy capitalizes on extreme valuation dislocations between Value and Growth stocks through market-neutral positioning, profiting from AI disruption by targeting companies at unsustainable multiples rather than forecasting which business models are vulnerable.
The strategy expects strong future returns to remain available given that MSCI ACWI Value only modestly outperformed MSCI ACWI Growth over the first half of 2026, meaning much of the potential for Value outperformance remains. The strategy continues to demonstrate its ability to profit from AI disruption by targeting unsustainable valuations rather than forecasting business model vulnerability. Equity Dislocation is expected to remain an excellent diversifier for equity portfolios given its negative beta to MSCI ACWI and tendency to perform well during periods of market decline.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 13 2026 | 2026 Q2 | 005930 KS, 034730.KS, 066570 KS, BBVA, EXPE, SAN | AI Disruption, banks, Market Neutral, Rotation, SaaS, South Korea, stock selection, value | - | GMO's market-neutral Equity Dislocation Strategy returned 9.05% net in H1 2026 by exploiting extreme Value-Growth dislocations through superior stock selection and active rotation. Korean growth names delivered 4.0% returns while banks and software shorts contributed meaningfully. The strategy profited from AI disruption by targeting unsustainable valuations rather than forecasting business model vulnerability. Strong performance during Q1's Value rally and resilience during Q2's Growth surge demonstrate the strategy's diversification benefits. |
| Apr 28 2026 | 2026 Q1 | - | credit, Currency, emerging markets, fixed income, FX, rates, Spreads, valuation | - | GMO sees stark valuation divergence in emerging debt with hard currency credit rich and local currency debt very attractive. Excess credit spreads at 121 bps suggest negative returns ahead while EM rates and FX offer compelling value in top quartiles. Blended portfolios tilted maximum 70% local currency given extreme relative valuations. |
| Feb 25 2026 | 2025 Q4 | 2222.SR, AAPL, AMZN, AVGO, BLK, CSCO, GM, GOOGL, HOOD, META, MSFT, NVDA, ORCL, OWL, PLTR, TSLA, TSM | AI, Bubbles, Data centers, semiconductors, Speculation, technology, valuation | HUBS | Grantham identifies an extreme AI bubble in U.S. stocks, with valuations at dangerous levels comparable to history's greatest technology manias. Despite AI's transformational potential, massive overinvestment of $300 billion annually by tech giants and extreme valuations signal inevitable collapse. The bubble shows classic signs but hasn't yet peaked, though severe losses await most investors when sentiment shifts. |
| Jan 28 2026 | 2025 Q4 | 2222.SR, AAPL, AMZN, AVGO, BLK, CSCO, GM, GOOGL, HOOD, META, MSFT, NVDA, ORCL, OWL, PLTR, TSLA, TSM | AI, Bubbles, Data centers, semiconductors, Speculation, technology, valuation | - | Grantham identifies an extreme AI bubble in U.S. stocks, with valuations at dangerous levels comparable to history's greatest technology manias. Despite AI's transformational potential, massive overinvestment of $300 billion annually by tech giants and extreme valuations signal inevitable collapse. The bubble shows classic signs but hasn't yet peaked, though severe losses await most investors when sentiment shifts. |
| Nov 21 2025 | 2025 Q3 | - | asset allocation, deep value, growth, international, Japan, Long/Short, valuation, value | - | Traditional 60/40 portfolios face disappointing returns due to expensive U.S. growth stocks and tight credit spreads. GMO's valuation-sensitive approach capitalizes on deeply discounted international value stocks, Japanese structural reforms, and the widest growth-value spread in decades. Current environment offers compelling opportunities for dynamic allocators willing to look different from passive benchmarks. |
| Aug 21 2025 | 2025 Q2 | AAPL, AMZN, GOOGL, META, MSFT, NVDA, TSLA, TSM | Dollar, growth, international, Supply Shocks, tariffs, technology, Valuations | - | U.S. equity outperformance stems from dollar strength and valuation expansion, not superior fundamentals. The median S&P 500 company delivered historically weak growth while facing supply shocks from tariffs, immigration restrictions, and policy uncertainty. International stocks trade at significant discounts with comparable growth prospects and benefit from currency tailwinds and more manageable economic challenges. |
| Mar 13 2025 | 2025 Q1 | BAYRY, MON | Capitalism, Chemicals, demographics, Fertility, Health, Resilience, sustainability, Toxicity | - | Chemical toxicity is driving an unprecedented fertility crisis that threatens human survival and will fundamentally reshape capitalism. Sperm counts have collapsed two-thirds since 1973, with current decline rates making most couples infertile within decades. This demographic collapse will stress economies while chemical companies face massive lawsuits. Investment strategy must emphasize resilience over growth. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
ValueThe strategy capitalizes on extreme valuation dislocation between Value and Growth stocks through market-neutral positioning. Value stocks are priced for ordinary outcomes, so any upside surprise is rewarded, while expensive Growth stocks are vulnerable to disruption. The strategy delivered 9.05% net YTD despite Value only modestly outperforming Growth, demonstrating strong stock selection and active rotation. |
Value Growth Dislocation Market Neutral Stock Selection |
AIThe strategy profits from AI disruption by targeting companies trading at unsustainable multiples rather than forecasting business model vulnerability. Markets showed concern over the scale of AI capital investment in Q1, contributing to Value outperformance. The AI trade fragmented structurally, with Software-as-a-Service plummeting as the narrative shifted from AI helping these companies to AI replacing them. |
AI Disruption Valuation Capital Investment | |
SaaSSoftware-as-a-Service companies experienced a collapse following the Anthropic-driven SaaSpocalypse in early 2026. The strategy had maintained an 8% net short position believing pricing was too optimistic. After the share price collapse, many companies were no longer modeled as egregiously expensive, and the net short position was reduced to 2%. Software contributed 1.4% to returns. |
SaaS Software Short Position Valuation | |
BanksBanks were a major success story in 2025 with average net long exposure of 7.5%. Banco Santander and Banco Bilbao were the two biggest contributors at the portfolio level, both up more than 150%. Following the stellar rally in European banks, the strategy still finds banks attractive but not to the same extent, and the net long position has broadly halved with some rotation out of Europe. Banks contributed 1.2% to H1 2026 returns. |
Banks Europe Long Position Rotation | |
South KoreaKorea exposure averaged 0.7% net long with gross exposure of 6.0% long and 5.2% short, adding 4.0% to total portfolio returns. The strategy targeted cheaper growth names including SK Square, LG Electronics, and Samsung Electronics, which enjoyed stellar returns. Despite diversification across 17 short and 16 long positions, the long book outperformed the short book by almost 100%, proving particularly helpful when Value was losing heavily to Growth in May. |
South Korea Growth Stock Selection Electronics | |
| 2026 Q1 |
Credit StressHard currency credit spreads are rich at 121 bps excess spread, falling in the first quintile of attractiveness. Historical data suggests negative 2-year credit returns of -1.9% for this quintile. GMO expects spreads to widen based on historical patterns. |
Credit Spreads EMBIG-D Sovereign Default |
Emerging marketsLocal currency debt shows very attractive valuations with EM rates in the fourth quartile versus US rates. FX valuations are attractive in the third quartile. Blended portfolios are tilted maximum local currency at 70% versus 30% hard currency due to extreme relative valuations. |
Local Currency Valuation GBI-EMGD FX Rates | |
DollarUSD rates show neutral valuation with modest deterioration in attractiveness. Current levels are slightly below fair value. The dollar is characterized as rich relative to emerging market currencies, consistent with GMO's view that EMFX is very attractive. |
USD Dollar Rates Fair Value Currency | |
| 2025 Q4 |
AIAI investment has been a major contributor to recent growth and technology-led earnings, supported by long-term capital investment. However, the pace of AI-related investment is expected to slow from exceptionally fast levels seen over the past two years. |
Artificial Intelligence Technology Investment Growth Capital |
ValuationsEquity valuations remain elevated with the S&P 500 trading near 23x forward earnings, well above its long-term average of 15.6x. Elevated valuations constrain longer-term returns and increase market sensitivity to earnings disappointments. |
Valuations Multiples Earnings Risk Returns | |
DollarA weaker U.S. dollar, down 9.4% in 2025, provided a notable tailwind for foreign assets and contributed significantly to international equity outperformance. |
Currency Dollar International Foreign Assets | |
RatesThe Federal Reserve cut rates three times in 2025 and currently expects one more cut in 2026. Markets are pricing in roughly two additional cuts, which would bring the Fed funds rate to around 3%. |
Federal Reserve Interest Rates Monetary Policy Cuts | |
| 2025 Q4 |
HousingStructural housing shortage in the US with rising millennial household formation. Higher mortgage rates reduce existing home supply, benefiting new homebuilders and their suppliers. BLDR positioned to benefit from this dynamic with value-add business comprising 40%+ of revenue. |
Homebuilders Building Materials Residential Construction Mortgage Rates Supply Shortage |
Metallurgical CoalSignificant underinvestment in metallurgical coal needed for worldwide steel consumption, particularly in Asia and India where high-grade met coal resources are limited. HCC completing capital investment cycle with Blue Creek development wrapping up by 2026. |
Steel Production Coal Mining Asia Capital Investment Supply Constraints | |
EnergySignificant underinvestment in natural gas, oil and thermal coal which are necessary for world economies to function. While renewables will play increasing role, the change will occur over decades. Offshore capital commitments expected to rebound in next 1-2 years. |
Oil Natural Gas Offshore Drilling Energy Investment Commodities | |
Regional BanksFlagstar has exceptional management ahead of the game in turning their business around. Trading at 67% of conservatively marked balance sheet versus similar banks at 140-160% of tangible book value. Turnaround going well with first profitable quarter reported. |
Bank Turnaround Management Quality Valuation Balance Sheet Profitability | |
AIMany businesses are transforming to benefit from investor excitement with questionable business plans but intense stock promotion. While AI will have impact, we are still very early in its lifecycle. Weak business fundamentals should become more apparent over time. |
Artificial Intelligence Business Models Valuations Technology Hype Fundamentals | |
Private CreditSpace has become very popular with lots of LP money chasing returns. Some sponsors have paid extremely high prices and lent on unfavorable terms. Many have lent into AI/data-center space to businesses with questionable futures. |
Private Lending Credit Markets Valuations Risk Management Data Centers | |
| 2025 Q3 |
ValueDeep value stocks are extremely dislocated, trading at 3rd and 7th percentile discounts in US and developed ex-US markets respectively. The cheapest 20% of markets offer compelling opportunities through valuation normalization and rebalancing effects. GMO is leaning heavily into this opportunity through long-only US and International Opportunistic Value strategies. |
Deep Value Valuation Rebalancing Opportunistic |
JapanJapanese equities represent a compelling opportunity driven by structural transformation, sustainable inflation, and corporate governance reforms. Japan small value stocks trade at historically wide discounts and benefit from an undervalued yen. Corporate reforms including increased buybacks and unwinding cross-shareholdings are accelerating. |
Corporate Reform Small Value Yen Governance Structural Change | |
GrowthGrowth stocks broadly are trading expensively relative to history, with the most richly priced 20% at 89th and 93rd percentile premiums in US and developed ex-US markets. The spread between extreme growth and deep value creates opportunities for long/short strategies to benefit from valuation normalization. |
Expensive Growth Valuation Spread Long/Short Premium Multiples | |
| 2025 Q2 |
ValuationsU.S. stocks trade at significant premiums to international peers despite similar growth prospects. International stocks offer 15-50% valuation discounts to U.S. counterparts with comparable expected growth rates. U.S. valuations are between 90th percentile on simple ratios and near all-time records relative to opportunity costs. |
Multiples Premium Discount P/E Price/Gross Profit |
DollarThe U.S. dollar is close to its most overvalued level in the last half-century and contributed 80% of U.S. equity outperformance through currency strength. Current administration policies actively make dollar assets less attractive to foreigners. Dollar depreciation expected to provide tailwinds for international equity investors. |
Currency Overvalued Depreciation Real Effective Exchange Rate | |
Trade PolicyLarge tariffs on most imports represent a negative supply shock that will raise costs for U.S. companies, reduce global competitiveness, and increase the general price level. Tariffs function as a regressive tax that will likely drag on domestic demand and corporate profitability. |
Tariffs Supply Shock Costs Competitiveness Inflation | |
AIThe Magnificent Six technology companies are making capital expenditures at vastly higher rates than ever before in pursuit of AI opportunities. These famously capital-light businesses will need to acquire new forms of magic if massive AI investments don't deliver expected returns. |
Capital Expenditures Investment Technology Growth | |
| 2025 Q1 |
ToxicityChemical toxicity from endocrine disruptors is causing fertility collapse and health damage globally. Sperm counts have declined by two-thirds since 1973, with current decline rates of 2.6% annually threatening human reproduction. This represents an existential threat requiring immediate action to detoxify the planet. |
PFAS Endocrine Disruption Fertility Chemicals Health |
ResilienceInvestment strategy must emphasize resilience and sustainability in an increasingly risky world facing multiple shocks. High-quality stocks with strong margins and low leverage will outperform as failure rates of marginal companies increase. Resilience becomes more valuable as economic and climate shocks accelerate. |
Quality Margins Leverage Sustainability Shocks |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Feb 25, 2026 | Fund Letters | Jeremy Grantham | HUBS | HubSpot, Inc. | Information Technology | Application Software | Neutral | New York Stock Exchange | Expectations, Multiple compression, Revenue Growth, SaaS, Sentiment, valuation | Login |
| TICKER | COMMENTARY |
|---|---|
| SAN | Banco Santander was one of the two biggest contributors to performance at the total portfolio level, up more than 150%. |
| BBVA | Banco Bilbao was one of the two biggest contributors to performance at the total portfolio level, up more than 150%. |
| EXPE | Expedia provides an excellent single stock case study of rotation. When it was above the dotted orange line, it was expensive, and it was cheap when it was below. The strategy had exposure to Expedia first long when it was cheap, then short as it became expensive, no exposure when it was about fair value, and then long again for much of the last few years. Expedia has been both a successful long and short position, adding almost 2% to cumulative performance, and is a great example of how dynamic portfolio rotation allows investors to make the most out of the Value opportunity. |
| 034730.KS | SK Square was one of the cheaper growth names targeted in Korea that enjoyed absolutely stellar returns. |
| 066570.KS | LG Electronics was one of the cheaper growth names targeted in Korea that enjoyed absolutely stellar returns. |
| 005930.KS | Samsung Electronics was one of the cheaper growth names targeted in Korea that enjoyed absolutely stellar returns. |
| Ticker | Put/Call | Company Name | Industry | Value (M) | Shares | Weight % | Shares Purchased/Sold | Change in Share % | Market Cap (M) |
|---|---|---|---|---|---|---|---|---|---|
| MSFT | - | MICROSOFT CORP | Information Technology | 2,547.6M | 5,267,686 | 6.5% | 308,087 | 6.2% | 2,969,829.4M |
| GOOGL | - | ALPHABET INC | Communication Services | 2,088.2M | 6,671,591 | 5.3% | -342,538 | -4.9% | 3,657,769.9M |
| META | - | META PLATFORMS INC | Communication Services | 1,919.9M | 2,908,562 | 4.9% | 635,655 | 28.0% | 1,614,716.5M |
| AAPL | - | APPLE INC | Information Technology | 1,823.4M | 6,707,117 | 4.7% | 584,276 | 9.5% | 3,877,900.6M |
| LRCX | - | LAM RESEARCH CORP | Information Technology | 1,599.5M | 9,344,080 | 4.1% | -489,931 | -5.0% | 301,541.9M |
| JNJ | - | JOHNSON & JOHNSON | Health Care | 1,467.1M | 7,089,139 | 3.8% | 273,944 | 4.0% | 589,099.8M |
| AMZN | - | AMAZON COM INC | Consumer Discretionary | 1,466.5M | 6,353,413 | 3.7% | 2,766,500 | 77.1% | 2,196,633.2M |
| TMO | - | THERMO FISHER SCIENTIFIC INC | Health Care | 1,397.7M | 2,412,063 | 3.6% | 270,200 | 12.6% | 191,727.6M |
| CRM | - | SALESFORCE INC | Information Technology | 1,087.2M | 4,104,033 | 2.8% | 293,398 | 7.7% | 178,457.2M |
| AVGO | - | BROADCOM INC | Information Technology | 1,085.6M | 3,136,731 | 2.8% | 325,982 | 11.6% | 1,575,667.4M |
| Ticker | Put/Call | Amount Bought | Shares Bought | % Change | Weight % |
|---|---|---|---|---|---|
| AMZN | - | $526.4M | 3M | 77.1% | 3.75% |
| META | - | $365.5M | 636K | 28.0% | 4.91% |
| TMO | - | $134.1M | 270K | 12.6% | 3.57% |
| AAPL | - | $129.2M | 584K | 9.5% | 4.66% |
| KO | - | $127.7M | 2M | 26.1% | 1.57% |
| Ticker | Put/Call | Amount Sold | Shares Sold | % Change | Weight % | Status |
|---|---|---|---|---|---|---|
| ORCL | - | $578.7M | 4M | -99.9% | 0.00% | Decreased |
| WFC | - | $66.0M | 939K | -14.9% | 1.27% | Decreased |
| GOOGL | - | $52.8M | 343K | -4.9% | 5.34% | Decreased |
| CNC | - | $41.6M | 686K | -90.1% | 0.01% | Decreased |
| LRCX | - | $35.4M | 490K | -5.0% | 4.09% | Decreased |
| Industry | Prev Quarter % | Current Quarter % | Change |
|---|---|---|---|
| Information Technology | 26.26% | 31.67% | +5.41% |
| Health Care | 22.88% | 24.30% | +1.42% |
| Communication Services | 10.05% | 11.56% | +1.51% |
| Financials | 9.44% | 10.17% | +0.72% |
| Consumer Discretionary | 5.64% | 8.92% | +3.29% |
| Consumer Staples | 3.18% | 4.55% | +1.37% |
| Energy | 2.92% | 2.87% | -0.06% |
| Industrials | 2.46% | 2.86% | +0.40% |
| Materials | 1.58% | 2.32% | +0.75% |
| Utilities | -0.29% | 0.31% | +0.59% |
| Other | 0.13% | 0.24% | +0.11% |
| Real Estate | 0.07% | 0.12% | +0.05% |
