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Jeremy Grantham describes what GMO means by high-quality U.S. stocks: "It's high return, stable return and low debt." And, "Quality is quality; we kind of know what it is. It's a great franchise company." However, no exact metrics have been stated.
I assume they (GMO/Grantham) are referring to blue chip stocks, with strong balance sheets and high dividends, stocks such as Coke (KO), Proctor & Gamble (PG), Johnson & Johnson (JNJ) and other Dow components that have pricing power. However, I have never seen the exact criteria for what qualifies as high quality.
Here are the top ten holdings from GMO’s Quality mutual fund:
Top 10 Holdings (45.89% of Total Assets)
Company Symbol % Assets YTD Return %
Microsoft Corporation MSFT 5.84 -7.49
Oracle Corporation ORCL 5.69 16.55
Johnson & Johnson Common Stock JNJ 5.27 7.92
Philip Morris International Inc PM 5.12 19.51
Wal-Mart Stores, Inc. Common St WMT 4.54 2.74
Coca-Cola Company (The) Common KO 4.47 3.68
Pfizer, Inc. Common Stock PFE 4.42 21.19
Exxon Mobil Corporation Common XOM 3.93 19.54
Apple Inc. AAPL 3.37 7.35
Cisco Systems, Inc. CSCO 3.24 -11.19
To see GMO's forecast from last month click on the following link:http://www.gurufocus.com/news/133130/may-2011-gmo-forecast-for-next-seven-years. GMO has made some slight changes with upward revisions to most stock criteria, except small caps, which they expect to have lower returns. I am not sure why they are so bullish on emerging markets to begin with, as signs of macro problems such as inflation and higher valuations lead me to believe that they will not have the returns that many people are expecting. At the end of '09 bulls were screaming “buy China.” However, from Jan. 1, 2010, to the present, FXI (iShares FTSE/Xinhua China 25 Index) is flat compared to a ~13% return for S&P500.
It also is hard to group all emerging market countries together. The economies of Russia and India, for example, are far different just based on demographics.
Overall, this chart largely agrees with my views presented in my latest monthly valuation article, where I am quite bearish about overall market returns in the coming decade. Seth Klarman also believes that this will be another lost decade for stocks. Ironically (IMHO), it is probably easier to predict what the overall market will do in the next 10 years instead of the next few months or days.
Other gurus are more bullish. Charles Royce stated in a recent interview that he expects the market to return 6-8% in the coming years.
[img]http://globalquote.morningstar.com/globalcomponent/GenerateStockChart.ashx?chart=custom&w=955&h=266&range=2010-1-1|2011-7-1&ticker=ARCX%3AFXI%2CARCX%3ASPY&color=0|3|&lan=en-US®ion=USA&cfg=GF:7&curry=USD&extraParam=0|0&isS=true&isD=true&hasF=false[/img]
GMO 7 year Forecast July
http://www.valuewalk.com/
About the author:
I am VP of Business Development for Sum Zero (http://sumzero.com), the largest community of buy-side analysts; consisting of over 5,900 hf and mf analysts, and over 3,600 extensive investment write-ups. I have prior experience in a value based pe firm focused on PIPE transactions in micro-caps, and at a value based research firm, which focused on smid caps. In my personal portfolio I have outperformed the market by a cumulative ~48% since 3/2008 (inception date). I can be contacted at jacob(at)sumzero.com for sumzero related inquires. My website is http://www.valuewalk.com/ Visit Jacob Wolinsky's Website
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- Jul 17, 2011 at 8:31 PM
