GMO reviews what its Small Cap Quality strategy learned in its first three years of live performance. The note argues quality kept working through AI enthusiasm, speculative junk rallies, and tariff volatility, with the strategy outperforming the S&P 600 by more than 4% per year net of fees.
Small Cap Quality Strategy: 10 Takeaways from the Past Three Years
GMO
Tom Hancock
Research
5 Pages
Key Takeaways
Quality Kept Winning: Since launch in September 2022, the strategy outperformed the S&P 600 by more than 4% per year net of fees through 2025.
Speculation Created Pain: A junk rally starting in July 2024 hurt relative results, but cumulative shareholder returns still reached 55% versus 35% for the S&P 600.
AI Exposure Stayed Low: Correlation to the AI ETF was 0.76 for the strategy versus 0.88 for the S&P 500, showing much lower AI beta in small cap quality.
Join our newsletter to have all of this content + Exclusive Newsletter Bonus Content delivered to your inbox every week
