Systematic Investment Grade Credit Strategy

The GMO Systematic Investment Grade Credit Strategy seeks to generate total return in excess of its benchmark, the Bloomberg U.S. Corporate Index, by employing a factor-based bond selection process.

The process utilizes a systematic approach, where bonds are cross-sectionally scored according to proprietary value, quality, momentum, and issuer fundamental signals. The portfolio construction process relies on a robust and flexible mean variance optimization setup that attempts to maximize alpha while simultaneously minimizing tracking error, subject to constraints. Constraints are dictated by the investment universe and portfolio guidelines, but often include bounds on active country, sector, and issuer concentrations while considering interest-rate, spread, and key-rate duration exposures. Liquidity screening provides a filtered universe that is tradeable in the secondary market, and turnover is managed to help contain transaction costs within a budget. Additionally, GMO’s proprietary Environmental, Social, and Governance (ESG) scores are utilized in the process, first to help filter out the lowest rated issuers from the investible universe, but also within portfolio construction to tilt the final portfolio toward more positively scored issuers.