For the last eight years, GMO’s Asset Allocation team has held a differentiated view on Japanese equities. Long before Japan re‑entered the global investment narrative, we argued that the country was undergoing slow but durable structural changes aimed at improving corporate governance, growth, and capital efficiency. These reforms were never expected to deliver quick results. Instead, we expected them to compound quietly over time.
Thanks to strong gains in markets over recent years, the 60/40 default portfolio has quietly morphed into a bundle of expensive U.S. growth equities and credit exposures offering narrow spreads over Treasuries.
Some institutional investors who had grown accustomed to outperforming the broader private equity composites are finding they have not done so consistently in recent years. Their diagnoses of the problem often center on specific decisions or biases they made in their recent manager selection, whereas a likely culprit is a falloff in the persistence of outperformance among private equity managers.
While most institutional investors recognize that private equity and public equity share similar economic risks, they often seem to ignore how their aggregate equity portfolio is affected by their substantial allocation to private equity.
GMO has posted a new 7-Year asset class forecast as of April 30, 2026.
The logic of balanced investing is straightforward: equities drive long-term growth, bonds provide income and ballast when stocks fall, and the combination delivers a smoother ride than either asset alone. For decades, the 60/40 portfolio has been the default framework for good reason – it has worked, often brilliantly, across multiple market cycles.
After years of U.S. equity dominance, conditions were shifting coming into 2026. Earnings growth outside the U.S. had begun to converge, wide valuation gaps narrowed modestly, and investor interest in international equities was rebuilding. While the Iran war injected uncertainty and temporarily dampened enthusiasm for non‑U.S. stocks, the underlying setup remains intact.
International deep value stocks are a high-conviction, active position across all GMO Asset Allocation portfolios. We define the deep value group of securities as the cheapest 20% of the market, a broad opportunity set that allows us to construct portfolios that are cheaper than traditional value indexes but still high in quality.
GMO has posted a new Valuation Metrics in Emerging Debt: 1Q26
GMO has posted a new 7-Year asset class forecast for 1Q 2026.
It has now been over three years since GMO launched our Small Cap Quality Strategy in September 2022. During that period, the world has shifted, and we have navigated unexpected market conditions.
Thanks to strong gains in markets over recent years, with many indices at or near record highs, the 60/40 default portfolio has quietly morphed into a bundle of expensive U.S. growth equities and credit exposures offering narrow spreads over Treasuries. In our view, such a portfolio is likely to disappoint investors by delivering low single-digit real returns.
There is little doubt that something unprecedented is happening in the world of AI, corporate investment, and equity returns. While AI may reshape the global economy, the surrounding investment cycle is still governed by the same macroeconomic and sentiment-driven forces that have shaped previous technological innovation and expansion periods.
GMO has posted a new 7-Year asset class forecast as of February 28, 2026.
Deep value stocks remain our highest conviction long-only investment idea. Globally, they trade at abnormally wide discounts and offer attractive expected returns in an environment where many equities trade at elevated valuation levels.
At these levels, valuations are stretched, leaving investors with little potential upside and increased vulnerability to spread widening. In our view, such an environment warrants a shift toward high-quality assets.
Three years after the launch of ChatGPT 3.5, positioning around artificial intelligence-related companies has become a (perhaps “the”) critical decision for equity investors. AI investment spending by companies far exceeds current revenue generation from end-market use cases, leaving highly leveraged players facing existential risks.
GMO’s Event-Driven Strategy posted a +11.1% return, net of fees, in 2025. This result compares favorably to the returns of our benchmark (the FTSE 3-month Treasury returned +4.4% in 2025) and our peers (the HFRX Merger Arbitrage Index returned +9.6%) over the same period.
Equity Dislocation celebrated its fifth birthday in October, and we are delighted that this was enjoyed in the positive context of returning 15.8% gross (13.4% net) for 2025.
With another year of market ebullience behind us, January seems a good time to take stock and share our thoughts on the portfolio for the years ahead.
GMO has posted a new 7-Year asset class forecast as of January 31, 2026.
At GMO, we have always defined a bubble as a two-standard deviation divergence of the price of any asset class above its long-term real price trend. The U.S. stock market has now been in bubble territory for a prolonged period. Sooner or later, the bubble will burst and the price will return to its historic level.
Local currency rates and FX screen very cheap, while hard currency credit is rich.
GMO has posted a new 7-Year asset class forecast as of December 31, 2025.
Despite recent results, healthcare has been one of the most compelling sectors over the past decade, consistently outpacing earnings growth in both the U.S. and across developed markets.
As enthusiasm for artificial intelligence and its potential to reshape business models and deliver extraordinary profits accelerates, we worry that rational, disciplined investing is taking a back seat. Many investors appear to be abandoning fundamental analysis and prudent valuation in favor of paying any price to own the hottest stocks.
GMO has posted a new 7-Year asset class forecast as of November 30, 2025.
The traditional 60/40 portfolio (60% equities, 40% bonds) has long been a standard for investors. Its limitations, especially during "lost decades," suggest the need for a fresh perspective.
According to market theory, persistent outperformance shouldn’t exist. However, companies with high and stable profitability, strong balance sheets, and disciplined capital allocation have demonstrated the ability to deliver superior returns with lower risk over time.
AI looks like a classic investment bubble to us, with very high valuations and signs of rampant speculation. But we recognize that while many investors harbor fears that AI might be a bubble, they are far from sure of that fact and tend to assume the market is appropriately priced as a fairly strong prior.
GMO has posted a new 7-Year asset class forecast as of October 31, 2025.
An advisor or allocator needs to do three things: understand the goals of their client, find different ways to earn returns for taking risks, and then take the right amount of risk to meet those goals.
The de facto “passive” allocation of 60% equities/40% bonds has proven effective at compounding wealth over time by tapping into two key risk premia: the equity risk premium earned by underwriting the risk of an economic growth shock and an inflation risk premium received for bearing the risk of surprise inflation.
GMO has posted a new 7-Year asset class forecast as of September 30, 2025.
To make an allocation to any asset class, it’s essential to understand not just the return potential but also the underlying riskiness. In hard currency emerging debt, the primary risk is sovereign default.
Earlier this year, GMO’s Asset Allocation Team invested a sizeable 13% of its flagship unconstrained Benchmark-Free Allocation Strategy into the GMO Alternative Allocation Strategy (ALTA). ALTA provides daily liquidity and seeks to deliver equity-like returns with sensible and competitive fees, allowing for realistic return forecasts and prudent risk management.
GMO has posted a new 7-Year asset class forecast as of August 31, 2025.
Although the relationship between fundamental returns and total returns after a decade is solid, valuations do matter – their impact is evident in the vertical distance between each stock observation and the diagonal line on the chart.
Investors today take for granted that the S&P 500 is an inherently superior group of stocks to those outside of the U.S. We believe investors who are substantially overweight U.S. large cap stocks would be well advised to rethink their stance.
After a mega, multi-year run of outperformance in U.S. equities over non-U.S. equities, investors have begun to question their regional equity weights.
Currently, spreads in most credit markets are at or close to historically tight levels, meaning that investors are locking in significantly lower levels of compensation than they have, on average, over the past several decades.
U.S. equities experienced a sharp sell-off in early April, hitting a low point on "Liberation Day" when higher-than-expected tariffs intensified recession and inflation concerns.
Local currency rates and FX screen very attractive, while hard currency credit is neutral.
GMO has posted a new 7-Year asset class forecast as of June 30, 2025.
As of June 2025, the relative valuation of the cheapest 50% of the U.S. stock market compared to the expensive half is at the 3rd percentile in our 40+ years of data.
We continue to believe we are seeing a rare opportunity in EM local debt, and our conviction has been strengthened by the Trump administration’s trade and economic policies, which suggest continued dollar weakness and relative strength for EM local currencies.
India has seen foreigners leaving the market for most of 2025. For this and other reasons, India has become one of the bigger shorts in our Systematic Global Macro Strategy’s equity portfolio
GMO has posted a new 7-Year asset class forecast as of May 31, 2025.
In our view, using quantitative methods in a transparent, repeatable way to extract alpha through diversified factor tilts offers a compelling alternative in this new IG environment.
