Beruflich Dokumente
Kultur Dokumente
Quarterly Update
Contents
Global Market Review ................................................................. 6 Asset Allocation............................................................................ 7 Performance Review and Outlook............................................. 9 Strategy Performance Details.................................................... 20 Table of Benchmarks ................................................................. 72
Inception Date 9/30/85 5/31/99 2/29/04 12/31/88 12/31/91 12/31/96 5/31/96 7/31/98
1Q 2011 4.42 5.92 8.33 6.46 3.48 5.92 4.34 6.03 8.02 7.68 14.34 9.83 6.58 6.49 3.92 6.38 1Q 2011 4.03 3.36 3.86 4.52 4.16 4.55 3.36 1.78 2.22 3.36 3.67 3.36 0.43 0.89 -1.51 -4.44 1.59 2.96 3.36 4.05 3.36
YTD 2011 4.42 5.92 8.33 6.46 3.48 5.92 4.34 6.03 8.02 7.68 14.34 9.83 6.58 6.49 3.92 6.38 YTD 2011 4.03 3.36 3.86 4.52 4.16 4.55 3.36 1.78 2.22 3.36 3.67 3.36 0.43 0.89 -1.51 -4.44 1.59 2.96 3.36 4.05 3.36
YTD Value Added -1.50 1.88 -2.44 -1.69 0.34 4.51 0.09 -2.46
11/30/01
-0.44
8/31/98
0.68
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. A GIPS compliant presentation is available at www.gmo.com. Copyright 2011 by GMO. All rights reserved. This document may not be reproduced, distributed or transmitted, in whole or in portion, by any means, without written permission from GMO.
1Q 2011 4.70 1.70 2.05 4.90 1.70 2.05 1Q 2011 6.20 4.80 4.68 4.80 3.93 3.71 4.80 1Q 2011 1.47 0.42 2.92 2.08 0.03 0.04 1.87 0.87 -0.37 -0.97 1.66 0.54 2.45 1.02 2.65 2.70 1.98 0.04
YTD 2011 4.70 1.70 2.05 4.90 1.70 2.05 YTD 2011 6.20 4.80 4.68 4.80 3.93 3.71 4.80 YTD 2011 1.47 0.42 2.92 2.08 0.03 0.04 1.87 0.87 -0.37 -0.97 1.66 0.54 2.45 1.02 2.65 2.70 1.98 0.04
9/30/97
3.20
J.P. Morgan GBI-EM Diversified Asset Allocation Bond Citigroup 3-Mo. T-Bill
* Returns for one of the accounts in the composite are based on estimated market values for the period from and including October 2008 through February 2009. ** Returns for the composite are based on estimated market values for the period from and including October 2008 through February 2009.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. A GIPS compliant presentation is available at www.gmo.com.
1Q 2011 2.72 3.03 2.10 2.99 1.42 2.71 1.13 1.47 3.55 4.57 3.52 4.80 3.40 3.38 3.01 3.36 4.07 6.20 -0.59 4.80 4.44 0.04 2.78 2.26 -1.42 0.04 2.13 2.88
YTD 2011 2.72 3.03 2.10 2.99 1.42 2.71 1.13 1.47 3.55 4.57 3.52 4.80 3.40 3.38 3.01 3.36 4.07 6.20 -0.59 4.80 4.44 0.04 2.78 2.26 -1.42 0.04 2.13 2.88
YTD Value Added -0.30 -0.89 -1.29 -0.34 -1.02 -1.28 0.02 -0.35 -2.13 -5.38 4.40 0.53 -1.46 -0.75
International Developed Equity Allocation 11/30/91 Blended Benchmark U.S. Equity Allocation Blended Benchmark Flexible Equities MSCI World Special Situations Citigroup 3-Mo. T-Bill Alternative Asset Opportunity Alternative Asset Opportunity Index Alpha Only Citigroup 3-Mo. T-Bill Tax-M anaged Global Balanced Tax-Managed Global Balanced Index 2/28/89 12/31/08 8/31/07 4/30/05 7/31/94 12/31/02
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. A GIPS compliant presentation is available at www.gmo.com.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. A GIPS compliant presentation is available at www.gmo.com.
Global Balanced Asset Allocation: One Example Recommendations as of March 31, 2011 Benchmark: 65% MSCI ACWI Index / 35% Barclays Capital Aggregate Benchmark
Fixed Income 35.0% U.S. Equities 27.8%
GMO Allocation
Cash & Special Equivalents 2.4% Situations 4.3% Alpha Only 14.0% Asset Allocation Bond 4.3% Emerging Country Debt 0.5% Strategic Fixed Income 10.5% Domestic Bond 3.0% Emerging Markets 12.0% Flexible Equities 1.1%
Quality 24.6%
International Intrinsic Value 4.4% International Growth 4.3% International Core Equity 14.6%
-10%
-5%
0%
5%
10%
Note: Asset Allocation ranges are 20% for U.S. and international equities and -10%/+15% for fixed income.
Asset Allocation
Review
With another strong quarter of returns for risky assets under our belts, it is worth asking if everything is, once again, overpriced. Determining whether all assets are expensive is more than an academic exercise. After all, we know that the usual suspect for a financial crisis is a dramatic fall in asset prices, which often happens after increasing debt levels have swollen prices far above fair value. Once the asset rout gets underway, debtors fear that they cannot roll their debts and creditors doubt whether they will ever be repaid. The subsequent recessions tend to be deeper and longer-lasting than average. At the end of the quarter, the S&P 500 stood at 1325. Over the last 10 years, the same index has produced an average of $56.6 of real earnings. Taken together, this means that the index finished the quarter with a cyclically adjusted price to earnings of 23.5 and suggests that the market is currently about 40% overvalued according to this popular and robust method. In a similar vein, nominal yields on the benchmark 10year government bond ended March at 3.45%. Assuming current inflation expectations of 2%, this also leaves government bonds handsomely overvalued, with poor expected returns going forward. Corporate debt is in a similar predicament, with credit spreads having narrowed ferociously over the last couple of years. These factors taken together make it appear that we are approaching levels from which large drops in asset prices could easily occur.
Strategies
From a strategic perspective, the current overpriced environment makes asset allocation decisions neither simple nor comfortable. Having established that we are once again in a world of narrow risk premiums, it is not hard to look back at history and pinpoint times where current valuations led to steep falls in prices. The problem, of course, is that we can also find previous episodes where markets continued to rally, albeit still delivering poor longer-term returns. This stark choice is made even more bleak by the dearth of safe assets
8
offering reasonable returns to hold while sitting out the ongoing stock market levitation. As a result, we are forced to hold more equities than we would prefer at these absolute valuations for the simple reason that we could be in for a long sideways grind where growth eventually closes the valuation gap. In that scenario, real equity returns will likely be meager, but at least positive. One group that we refuse to hold, however, is global small cap stocks and, in particular, U.S. small caps. On our data, U.S. small cap stocks are now as expensive as we have ever seen them. Perhaps more surprising still is the deafening silence about this distinctly frothy group. Although the S&P 500 price index is still some way below its all-time high, U.S. small caps are within spitting distance of theirs: a high that was last reached with a booming global economy, strong employment, and a debt-driven consumption binge in full swing. Our broad strategies are: Maintain bias towards high quality stocks. While quality stocks were up this quarter, the party clearly passed them by. Though painful, their relative valuation has only gotten stronger. Quality stocks represent one of the few areas within U.S. equity markets that are trading at least somewhat near fair value, and that justifies an overweight. Remember what Quality represents companies that exhibit abnormally high ROEs, time-tested ROEs, and low levels of debt. These were NOT the characteristics of companies that QE2 was supposed to help, so its quite logical that they have not been as big a beneficiary. But any portfolio of stocks that continues to rely upon artificial intervention a junk-rally junkie, so to speak is eventually going to confront a nasty hangover. Maintain exposure to emerging markets, but be watchful. We are overweight emerging markets within global equity mandates as they represent a subasset class that we believe is priced to deliver very
9
returned +5.9% for the quarter in full, with small and mid cap indices faring even better. With headlines touting disaster, U.S. investors appeared to prefer detachment. Overseas turmoil received its fair share of attention, but U.S. stock returns reflected more optimism than fear. Wall Streeters pointed to a mlange of better-than-expected economic data as a collective rallying cry in their optimistic outlook. From retail sales to factory goods to business productivity, economic surveys painted a pleasing portrait of a domestic economic recovery. The perception of a rising economic tide lifted all boats. While Energy stocks responded to overseas woes with a market-leading gain, a U.S. company didnt need to be a perceived beneficiary from geopolitical turmoil to see its share price advance in the first quarter. All 10 GICS sectors within the S&P 500 posted positive returns during the quarter, with Energys +16.8% leading the way and the Consumer Staples sector the biggest relative laggard with a +2.8% first quarter return. The large cap S&P 500s +5.9% first quarter return was bested by the small/mid cap Russell 2500s 8.7% gain and the small cap Russell 2000s 7.9% advance. Within large cap, value indices beat growth indices, while in small and mid cap, growth outperformed value. Investment factor spreads within the market exhibited pro-risk bias. High quality large cap U.S. stocks lagged the market substantially while low quality outperformed modestly. Momentum metrics rode the pro-risk trend to positive quarterly returns and value measures delivered mostly positive relative performance as well, although those more exposed to high quality stocks struggled to keep up with the market.
10%
7.7% 5.9% 6.1% 6.5% 6.0%
9.8%
6.5%
5%
0% S&P 500 Dow Russell 1000 Russell 2500 MSCI Jones Value Growth Value Growth U.S. U.S. TSM REIT
The U.S. market began 2011 exhibiting the same optimistic mood that dominated the second half of 2010. U.S. investors shook off a mix of geopolitical trouble in oil-producing nations and a natural disaster and subsequent nuclear crisis in Japan to push the U.S. market to a third consecutive quarterly gain. While troubles in Libya and Egypt sent oil prices higher and the Japanese disaster produced a brief bout of equity risk aversion in March, neither event was enough to derail the U.S. markets first quarter trajectory. The S&P 500
Market Outlook
In the long run, investment returns have three sources: dividends, fundamental growth, and changes in price multiple. There are innumerable factors that influence a companys ability to pay dividends and grow, and the multiple the market is willing to pay for it. But at the heart of a value investment philosophy is an understanding of what is knowable, what is unknowable, the risks to both the known and unknown, and where we derive an edge. Our focus remains on understanding the
10
U.S. Equities
Relative Performance of Selected Groups versus the S&P 500 Year-to-Date March 31, 2011
0.5
Largest 100
3.0 2.0
Russell 2500
0.0
1.0
Size
-0.5
0.0 -1.0
-1.0
-2.0
-1.5 12/10
1/11
2/11
3/11
-3.0 12/10
1/11
2/11
3/11
Investment Disciplines
1.5
1.0
0.5
-1.0
0.0
-0.5 12/10
1/11
2/11
3/11
1/11
2/11
3/11
Consumer Discretionary
Financials
-2.0 -3.0
Sectors
-4.0 12/10
1/11
2/11
3/11
1/11
2/11
3/11
4.0
Information Technology
4.0
2.0
2.0
0.0
0.0
-2.0
-2.0
-4.0 12/10
1/11
2/11
3/11
-4.0 12/10
1/11
2/11
3/11
11
vulnerable loans, and generally more domestic exposure) and Technology (with worries of manufacturing disruptions). The spread of returns within the Japanese market was actually fairly wide, however, and defensive telecommunications stocks and some constructionrelated companies enjoyed robust positive returns. At a factor level, riskier stocks were punished within Japan. Smaller stocks underperformed, as did low price-to-book stocks and low quality stocks on GMOs metric (blending the level and stability of profitability along with low leverage). Energy was the best performing sector within EAFE, enjoying double-digit returns in aggregate as crude oil prices climbed 25% on the back of MENA unrest. Explorers and drillers did best, but integrated majors like Total, BG Group, Statoil, and Repsol were all up over 15% in dollar terms (with the first two being the top contributors to EAFEs overall return). Even Italian company ENI, with involvement in Libya, was up over 12%. BP was a notable laggard within the sector, delivering essentially flat returns. Telecommunication Services was the next best performing sector, led by Deutsche Telekom, which agreed to sell its T-Mobile USA business to AT&T. Telecom Italia and KPN in the Netherlands were also strong performers. Industrial stocks also gained, as did financial stocks as European investors saw value there even in an environment of concern over sovereign debt. Faith in the economic recovery gained strength over the quarter, which benefited many cyclical stocks in Europe and Asia ex-Japan. The worst performance was put in by the Information Technology sector. Troubles at Nokia were a major impact there as that stock fell nearly 18% in dollar terms. At the country level, the European periphery staged a bit of a comeback. Greece was the best performing market, up 15% in dollar terms, closely followed by Italy and Spain. Even Portugal, which has been much in the news for the quarter, rose 8.7%, while Ireland gained 9.0%. Every European market gained value, with Finland and Switzerland being the smallest gainers. In Asia, Hong Kong joined Japan as the other developed
5%
1.0%
3.4%
2.1%
2.0% 2.8%
1.7%
0%
-2.8%
-5%
In Local Terms In Dollars
-4.9%
-10% EAFE
Japan
The first quarter of 2011 was a turbulent one around the world. Unrest in the Middle East and North Africa (MENA) led to rising oil prices. The earthquake in Japan had tragic consequences. And within Europe the debt crisis was front and center in the minds of investors. Yet despite this sea of troubles, equity prices held up. The MSCI EAFE index of developed international stocks returned +3.4% in U.S. dollar terms. Outside of Japan, the return was close to the U.S. market return with the EAFE ex-Japan index gaining 5.7%; MSCI Japan lost 4.9%. Japan tumbled following the devastating earthquake, tsunami, and nuclear crisis, with MSCI Japan losing 5.8% from March 11 to quarters end, over which period EAFE ex-Japan rose 3.3%. Within Japan, the most obvious casualty was Tokyo Electric Power (TEPCO), operator of the damaged Fukushima nuclear reactor, which lost three quarters of its market value amid speculation of nationalization. TEPCO is heavily levered, and so solvency is certainly a concern. Outside of Utilities, the worst performing sectors in Japan were Financials (with real estate exposure, potentially
12
market to suffer a decline, though Hong Kongs was by less than a percent. New Zealand suffered from its own earthquake, but still was up over 4%, as was Australia. Currency returns helped boost dollar-based investors equity returns, as the EAFE index was up only 1% when measured in local currencies. Euro-bloc currencies were the strongest. The two earthquake currencies of the yen and New Zealand dollar were the only ones with appreciable declines. The yen had a wild ride, appreciating to a record high below 78 against the U.S. dollar after the earthquake before subsequently falling back with intervention (and sanity?). Value stocks generally outperformed, with the MSCI Value index beating MSCI Growth by 4.5% to 2.2%. This was largely driven by Europe, where small caps also outperformed. Small stocks underperformed by enough elsewhere to hold the MSCI Small Cap index slightly below EAFE, with a return of +3.0%
Outlook
The main components of the MSCI EAFE index are Europe and Japan, and so investing in developed international equities comes with the baggage of significant exposure either to troubled or stagnant economies with poor demographics and uncertain growth prospects, or a choice of either natural disaster or, perhaps, a manmade one in the form of Japans financial system. But many of the individual companies located in those countries have better prospects. And price matters as much, or more, than growth in assessing prospective investment return. The fall in Japanese equities seemed extreme in light of the estimates of the actual damage to productive capability. While destruction of capital can hardly be a good thing, if there is one country that could use less capital, it would be Japan. While value spreads have tightened a bit within the quarter in Europe, they are wide enough to provide reasonable stock picking opportunities.
13
peers. Thats aided competitiveness at companies, providing a significant tailwind in a nation where exports are equivalent to about half of the economy. Korea has been a major beneficiary of the recent positive news flow in the U.S. The consumer price index rose 4.7% from a year earlier, accelerating from a 4.5% pace in February. The central bank raised the benchmark rate by a quarter of a percentage point to 3% in March, following an increase of the same amount in January. India has seen investors increasingly concerned about rising inflation and its effect on corporate earnings. The government forecast that the economy would expand as much as 9.25% in the year starting April 1, the fastest pace since 2008. The central bank raised the benchmark rate in March, making it the eighth move in a year. India imports three-quarters of its energy needs and the surge in oil prices has compounded inflationary pressures. Non-food manufacturing inflation, which reflects the strength in consumer demand, accelerated to 6.1% in February from 4.8% in the previous month. On the fiscal front, the government has proposed increasing spending by 13.4%, but also announced a lower target for the budget deficit of 4.6% of gross domestic product from 5.1% in the prior 12 months. Our models have considered India to be expensive for several quarters and this is reflected in the underweights in Indian Consumer Discretionary, Industrials, Utilities, and Materials.
Outlook
This outlook discusses some of the country/sectors where we see notable developments.
Brazilian Credit
Brazils newly elected government is attempting to steer a booming economy through the choppy waters of rising inflation and a strengthening currency. The latter was the focus initially. Finance Minister Mantega, credited with coining the term currency war, was quite vocal on the perils of a loose U.S. monetary policy. However, confronted with the scarier demon of inflation, the government seems to have raised the white flag on currency appreciation. Mantega acknowledged that a
14
strong currency would help curb inflation and felt that its strengthening is unavoidable. While a strong currency hurts exporters, the damage inflicted by inflation would be more widespread. Brazil, in particular, has painful memories of the damage caused by runaway inflation. The central banks weekly survey of economists suggests that expectations for inflation this year have reached 6.3%, approaching the governments target range of 4.5%, plus or minus 2%. Real interest rates are already the highest of any large economy. This has forced Brazil to resort to taxes on consumer credit and other ad hoc measures. Brazil doubled a tax on consumer credit to 3%. The government aims to slow credit from its current 21% annual growth down to 12% to 15%. We are close to neutral on Brazil (on average across its sectors).
Chinese Property
Chinese Premier Wen Jiabao has emphasized the overarching importance of keeping housing affordable and maintaining stability in consumer prices. Consumer prices in February climbed 4.9% from a year earlier, exceeding the governments annual inflation target of 4%. While the 1-year deposit rate was hiked to 3.25%, it has lagged the pace of consumer price gains, incentivizing households to consider assets such as real estate. Housing prices gained for 19 consecutive months through December. Prices rose 0.6% in March with 82 out of 100 cities showing an increase according to SouFun Holdings Ltd., owner of the nations biggest real estate website. China has tightened property related measures such as the minimum down payment several times. Taxes have been introduced on residential properties in Shanghai and Chongqing. About 40 Chinese cities said they would cap new home prices below disposable per capita income growth. Wen Jiabao has declared that the government would severely punish irregularities in the real estate market and hold local officials accountable for maintaining stable home prices. We are underweight most Chinese sectors, with Telecoms being a notable exception. The drivers have been its expensiveness and poor momentum.
Russian Energy
Unrest in the Middle East and the nuclear crisis in Japan have been generally positive for Russian energy in both the short and long term. The turmoil in the Middle East caused energy prices to spike in the first quarter, boosting Russias economy. Russia has not been bashful
15
curve actually steepened during the quarter: real 2-year yields fell by 94 basis points, real 10-year yields fell by only 1 basis point, and longer-dated real yields (>20 years) rose by 10 basis points. The unresolved budget debate in the U.S. weighed on all long-term U.S. Treasuries.
4% 3% 2% 1% 0% -1% -2% U.S. Gov't. EMBIG Bonds (Emerging (GBI) External Debt)
Local Term Structures USD Term Structure Em erging FX Em erging Sovereign Credit DM FX
GBI exGBI-EMD (Emerging U.S. (G10 Gov't. Debt Local ex-U.S.) Debt)
Once again, the quarters most notable bond market laggards were the so-called PIIGS-country bonds in Europe. The European debt crisis intensified again in March of Q1, with Portuguese and Irish bond yields reaching record highs since the euros launch. Portuguese bond market total returns fell by 9% during the quarter, given the countrys Standard & Poors sovereign credit rating downgrade to BBB- and the looming possibility of a financial bailout. In Ireland, bond market total returns fell by 6%, given the discovery of a 24 billion shortfall on a recent round of bank stress tests. Core euro zone debt markets, including Germany and France, also fell during the quarter, but on a smaller scale, by 0.4% to 2.4%. Spanish bonds decoupled from the rest of the PIIGS, returning +2.1% as Spanish banks made efforts to boost capital. Greek bonds were nearly flat in total return terms, as high running spreads offset the price declines.
16
European Government Bond Total Returns 1Q 2011
2.1% 0.5% 0.2% -0.4% -2.0% -2.3% -2.4% -5.7% -8.6%
It a ly
ce G er m an N y et he rl a nd s
ec e
la nd Ire
ai n
G re
Fr an
Sp
lg i
Be
In terms of yield levels, interest rates rose in most markets. An exception in the G10 was New Zealand, where the Reserve Bank unexpectedly cut policy interest rates by 50 basis points in the wake of the Christchurch earthquake. In emerging, rates fell notably in Hungary and Russia. In Hungarys case, positive news regarding fiscal reform drew investment flows to that market. In Russia, the reason was less clear, since the central banks own forecast for inflation is well above the current level of yields.
Po
rtu ga l
um
0.2
0.2
0.2
0.2
0.3
0.2
0.3
-0.2 -0.4
Ne w
Hu ng ar Ru y ss Sin ia ga po re Ta iwa Ho n ng Ko ng Ma lay si a Ko re Po a lan d Cz Chin ec h. a R GB ep. I -E Th MD ail an d Me xic o Ch i le S. Afr i ca Br az il Isr ae Tu l Ind rkey on es ia
17
Chilean peso was another notable laggard, -2.0%. Chile announced a massive fx intervention program, apparently desperate to avoid capital controls, the effectiveness of which has been extensively questioned by Chilean policymakers subsequent to their 1990s experiments with them. In G10, Swedish krona led gains, +6.6%, while New Zealand dollar lagged, -2.4%. Central banks in Sweden and New Zealand were the only ones of the G10 to change policy interest rates during the quarter. The Swedes raised theirs by 25 basis points amidst a healthy economic environment, and the New Zealanders cut theirs by 50 basis points anticipating that the February Christchurch earthquake would add to the uncertain economic environment. The Japanese yen fell by 2.1%, pushed lower by coordinated G7 intervention. The yen briefly hit multiple-decade highs as the market feared repatriation flows would flow after the March 11 earthquake, tsunami, and subsequent nuclear catastrophe.
5.8
0.9
1 1 2.0 2.0 .6 .8
-2.4 -2.1
Ne w
Eg S. ypt A Ar frica ge nti na C Th hile ail a Ta nd iwa T n Ho urk ey ng Ko ng Pe ru Ind ia Ph Chi ilip na p Sin ines ga p Ma ore lay si a Br az Is il GB rael I Co -EMD lom bia K Ind orea on es Po ia lan Me d xic Cz Russ o ec h. ia Ro Rep. ma Hu nia ng ary
18
In credit markets, emerging debt spreads (EMBIG series) widened by 10 basis points to 299 basis points during the quarter. That said, most of the spread widening was due to compositional changes: during the quarter, the EMBIG added bonds from high-spread countries such as Belarus, Jamaica, Ukraine, Venezuela, Nigeria, and Lebanon, while dropping entirely the lone bond from low-spread Tunisia. The EMBIGs S&P rating fell by one notch to BB+ this quarter as a result of these changes. Liquidity in the emerging cash bond market improved and the average bid-offer spread narrowed to 62 basis points at the end of the quarter from 89 at the beginning. New issuance of $81 billion was second only to the record high of $88 billion in the third quarter of 2010. Emerging debt spreads remained narrower than the peripheral European country spreads (Greece 990; Ireland 640). Indeed, neighboring Hungary, whose debt/ GDP statistics would qualify it as a PIIG, had a 5-year CDS at quarter end of 257 basis points. During the quarter, Hungary hit the road meeting global investors and then issued a series of large U.S. dollar bonds. The biggest index gainers were Ivory Coast (+8.3%), Ecuador (+7.4%), Georgia (+6.1%), and Hungary (+5.5%). The Ivory Coast bond rebounded at the end of
lar u E s Pa gyp Do kist t m. an Le Rep ba . n Tu on Ar rke g y Sr entin iL a Ind ank on a es Be ia Tu lize nis ia Pe Ph Ch ru in il El ippin a Sa es lva do Ch r Po ile lan So B d ut h raz A il Ma frica lay EM sia Bu BIG lg Pa aria na m Me a xic Cr oa o Ga tia Co bo lom n Nig bia Ur eria ug u Jo ay rda Cr n oa Gh tia an a Ru Iraq s U k si a rai Vi e n e t na Ka Se m za rbia k Ve hsta ne n z Ja uela ma H u i ca n Ge gary o E rgi Ivo cuad a ry Co or as t
Be
19
Change in Central Bank Policy Rates, 3-Month LIBOR & Inflation 1Q11 (Basis Points)
73 58 24 0 0 0 0 1 0 -3 50 30 13 0 1 0 7 44 30 25 0 6 73 55
0 -5
Policy Change 3-Month LIBOR Consensus Inflation Forecast for 1-Yr. Ahead
ad a Sw itz erl an d No rw ay Sw ed en
U. S.
Outlook
As the first quarter closed, the inflation/deflation debate was, as in Q1 2008, raging. Below we update the chart we used at that time, which compares the change in policy rates, deposit rates, and consensus 1-year-ahead inflation expectations in the G10. Like Q1 2008, inflation expectations are rising solidly nearly everywhere. Also like Q1 2008, only Sweden and the ECB seem to be concerned (Sweden raised its policy rate, and the ECB was widely expected to do so, as evidenced by the rise in LIBOR). In emerging, again also like Q1 2008, inflationsensitive central banks in China, Taiwan, Central Europe, Russia, and Poland, Russia, Romania, Czech Republic, Peru, and Egypt, among others, were tightening policy.
The difference between now and then, however, is the supposed coordination among policymakers that has existed since the financial crisis that erupted later that year. Unfortunately, policy coordination breaks down when not everyone faces the same economic condition, which had been the case when these policy coordination pledges were made. To equalize or at least counteract the effects of asynchronous policy shifts, many countries are resorting to capital controls and other measures, these days with the endorsement of the IMF. Widespread changes in the rules of cross-border investing make generating an outlook fairly difficult. We keep our portfolios tilted toward those currencies, interest-rate, credit markets, and instruments that we believe represent good value. At quarter end that included a continued underweight in the U.S. dollar, both against most G10 currencies and most emerging ones. In rates, we remained underweight duration overall, with a notable underweight in Japan. In credit, we still see value in asset-backed securities and emerging debt.
Disclaimer: The views expressed herein are through the period ending March 31, 2011, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security, is not intended to be investment advice and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.
Eu ro
UK Au str ali a Ne w Ze al a nd
ntr ies
Ja pa
Co u
Ca n
20
4.42 5.92
2001
2002
2007
2008
Pfizer Inc. Microsoft Corp. Wal-Mart Stores Inc. Google Inc. (Cl A) Oracle Corp. Int'l. Business Machines Merck & Co Inc Procter & Gamble Co. Coca-Cola Co. Johnson & Johnson Total
5.0% 4.7% 4.2% 4.0% 3.8% 2.8% 2.7% 2.7% 2.7% 2.6% 35.2%
Sector Weights5
Sector Underweight/Overweight Against Benchmark Strategy Benchmark -2.5 Consumer Discretionary 7.9 % 10.4 % 10.7 Consumer Staples 20.9 10.2 -8.4 Energy 4.9 13.3 -13.3 Financials 2.5 15.8 15.3 26.3 Health Care 11.0
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Dividend Yield - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil
x x % %
x x % %
Quarterly Strategy Attribution U.S. Core Strategy returned +4.4% for the first quarter of 2011, trailing the +5.9% return of the S&P 500 index. The Sector selection detracted from relative returns for the quarter. The strategy saw positive returns relative to the benchmark attributable to its underweight positions in Financials and Utilities. Overweight positions in Information Technology and Consumer Staples and an underweight in Energy were among the detractors. Stock selection also detracted from relative returns. Selections in Health Care, Energy, and Telecommunication Services added to returns versus the benchmark while picks in Information Technology, Financials, and Consumer Staples detracted. Individual stocks adding to relative returns in the first quarter included overweight positions in Pfizer, UnitedHealth Group, and ConocoPhillips. Stock selections detracting from returns versus the benchmark included overweight positions in Microsoft, Wal-Mart Stores, and Merck.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The S&P 500 Index is an independently maintained and widely published index comprised of U.S. large capitalization stocks. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
21
8.33 6.46
2001
2002
2007
2008
Pfizer Inc. UnitedHealth Group Inc. ConocoPhillips Exxon Mobil Corp. Microsoft Corp. Oracle Corp. AT&T Inc. Apple Inc. Google Inc. (Cl A) Wal-Mart Stores Inc. Total
3.8% 3.6% 3.4% 3.4% 3.2% 3.1% 2.9% 2.9% 2.8% 2.3% 31.4%
Sector Weights5
Underweight/Overweight Against Benchmark Strategy Benchmark -2.1 Consumer Discretionary 5.9 % 8.0 % 1.8 Consumer Staples 11.2 9.4 -1.3 Energy 12.5 13.8 -14.6 Financials 12.3 26.9 12.5 Health Care 24.9 12.4 -2.0 Industrials 7.4 9.4 Sector
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Dividend Yield - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil
x x % %
x x % %
Quarterly Strategy Attribution Intrinsic Value Strategy returned +8.3% for the first quarter of 2011, leading the +6.5% return of the Russell 1000 Value index. The Sector selection detracted modestly from relative returns for the quarter. The strategys underweight positions in Utilities and Financials added to relative returns. Underweight positions in Materials and Energy and an overweight in Information Technology detracted from returns versus the benchmark. Stock selection added to relative returns. Selections in Health Care, Energy, and Financials added to returns versus the benchmark while picks in Information Technology detracted. Individual names adding to relative returns included overweight positions in UnitedHealth Group, ExxonMobil, and ConocoPhillips. Stock selections detracting from relative returns included overweight positions in Microsoft, Google, and Wal-Mart Stores.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The Russell 1000 Value Index is an independently maintained and widely published index comprised of the stocks included in the Russell 1000 Index with lower price-tobook ratios and lower forecasted growth values. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
22
3.48 5.92
2007
2008
Oracle Corp. Johnson & Johnson Microsoft Corp. Philip Morris Int'l. Inc. Pfizer Inc. Coca-Cola Co. Apple Inc. Wal-Mart Stores Inc. Exxon Mobil Corp. Procter & Gamble Co. Total
6.2% 5.9% 5.8% 5.6% 4.8% 4.5% 4.0% 3.7% 3.5% 3.0% 47.0%
Characteristics4
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med 15.6 x Price/Book - Hist 1 Yr Wtd Avg 3.2 x 2.6 % Dividend Yield - Hist 1 Yr Wtd Avg 23.4 % Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil $152.1 0.6 x Debt/Equity - Wtd Med
x x % % x
Regional Weights4
Cash 3.4% Int'l. Equities 13.6%
Sector
Sector Weights4
Underweight/Overweight Against Benchmark Strategy Benchmark -8.4 Consumer Discretionary 2.0 % 10.4 % 20.6 Consumer Staples 30.8 10.2 -3.6 Energy 9.7 13.3 -15.8 Financials 0.0 15.8 15.9 Health Care 26.9 11.0 -9.6 Industrials 1.7 11.3
GMO 2011
23
4.34 6.03
2001
2002
2007
2008
Apple Inc. Exxon Mobil Corp. Microsoft Corp. Int'l. Business Machines Google Inc. (Cl A) Oracle Corp. Coca-Cola Co. QUALCOMM Inc. Wal-Mart Stores Inc. Philip Morris Int'l. Inc. Total
7.0% 5.1% 3.6% 3.5% 3.3% 2.9% 2.7% 2.4% 2.2% 2.2% 34.9%
Sector Weights5
Underweight/Overweight Against Benchmark Strategy Benchmark -1.7 Consumer Discretionary 12.6 % 14.3 % 16.6 25.9 Consumer Staples 9.3 -5.5 Energy 6.4 11.9 -4.1 Financials 0.6 4.7 0.1 Health Care 10.0 9.9 -7.8 Industrials 5.8 13.6 Sector
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med 17.0 Earnings/Share - F'cast LT Med Growth 12.9 1.6 Dividend Yield - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med 25.4 $78.0 Market Cap - Weighted Median $Bil
x x % %
x x % %
Quarterly Strategy Attribution Growth Strategy returned +4.3% in the first quarter of 2011, trailing the +6.0% return of its benchmark, the Russell 1000 Growth The index. Sector selection detracted from relative returns. Underweight positions in Materials and Consumer Discretionary added to relative returns while an overweight in Consumer Staples and underweight positions in Industrials and Energy were among the detractors. Stock selection also detracted from relative returns for the quarter. Selections in Information Technology, Health Care, and Consumer Discretionary were among the detractors. Individual stocks adding to returns included overweight positions in Este Lauder and Apple and not owning Ford Motor. Selections detracting from relative returns included overweight positions in Microsoft, Johnson & Johnson, and Wal-Mart Stores.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The Russell 1000 Growth Index is an independently maintained and widely published index comprised of the stocks included in the Russell 1000 Index with higher priceto-book ratios and higher forecasted growth values. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
24
8.02 7.68
2007
2008
CenturyTel Inc. 1.3% Autoliv Inc. 1.3% Coventry Health Care Inc. 1.2% Torchmark Corp. 1.2% Herbalife Ltd. 1.2% PETsMART Inc. 1.2% Endo Pharmaceuticals 1.2% Ball Corp. 1.2% Energizer Holdings Inc. 1.1% TRW Automotive Holdings 1.0% Total 11.9%
Sector Weights5
Sector Underweight/Overweight Against Benchmark Strategy Benchmark 14.5 Consumer Discretionary 24.2 % 9.7 % 4.8 Consumer Staples 8.1 3.3 -6.5 Energy 3.4 9.9 -16.2 Financials 15.3 31.5 8.2 Health Care 14.2 6.0 2.3 Industrials 14.4 12.1
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Dividend Yield - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil
x x % %
x x % %
Quarterly Strategy Attribution Small/Mid Cap Value Strategy returned +8.0% in the first quarter of 2011, leading its benchmark, the Russell 2500 Value index, The which returned +7.7%. Sector selection detracted from returns relative to the benchmark. An underweight in Financials and an overweight in Health Care added to relative returns while an underweight in Energy and overweight positions in Consumer Discretionary and Consumer Staples detracted. Stock selection added to relative returns for the quarter. Selections in Consumer Discretionary, Consumer Staples, and Industrials added to returns versus the benchmark while picks in Energy, Telecommunication Services, and Health Care detracted. Individual stocks adding to relative returns included overweight positions in Weight Watchers International, Fossil, and Amerigroup. Individual names detracting from relative returns included overweight positions in American International Group, CenturyLink, and Autoliv.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The Russell 2500 Value + Index is an internally maintained benchmark computed by GMO, comprised of (i) the Russell 2500 Index from 12/31/1991 to 12/31/1996 and (ii) the Russell 2500 Value Index thereafter. The Russell 2500 Value and Russell 2500 Indices are a trademark/service mark of the Frank Russell Company. Russell is a trademark of the Frank Russell Company. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
25
14.34 9.83
2001
2002
2007
2008
TIBCO Software Inc. Atmel Corp. Herbalife Ltd. Acme Packet Inc. Riverbed Technology Inc. Fossil Inc. Wabco Holdings Inc. Chipotle Mexican Grill Inc. RPC Inc. Tractor Supply Co. Total
5.1% 4.4% 3.9% 3.6% 3.6% 3.0% 2.8% 2.8% 2.7% 2.6% 34.5%
Sector Weights5
Sector Underweight/Overweight Against Benchmark Strategy Benchmark 2.7 Consumer Discretionary 21.3 % 18.6 % 2.2 Consumer Staples 5.2 3.0 0.1 Energy 5.8 5.7 -3.2 Financials 3.6 6.8 -7.0 Health Care 8.6 15.6 0.2 Industrials 17.9 17.7
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Earnings/Share - F'cast LT Med Growth Dividend Yield - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil
x x % %
x x % %
Quarterly Strategy Attribution Small/Mid Cap Growth Strategy returned +14.3% in the first quarter of 2011, topping the +9.8% return of its benchmark, the The Russell 2500 Growth index. Sector selection had a positive impact on returns versus the benchmark. An overweight in Consumer Staples and an underweight in Health Care added to relative returns. Stock selection added to relative returns for the quarter. Selections in Consumer Discretionary, Information Technology, and Industrials added to relative returns while picks in Consumer Staples detracted. Individual stocks adding to relative returns included overweight positions in Tibco Software, Acme Packet, and Weight Watchers International. Individual names detracting from relative performance included overweight positions in NxStage Medical and Entropic Communications and not owning Green Mountain Coffee Roasters.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The Russell 2500 Growth Index is an independently maintained and widely published index comprised of the stocks included in the Russell 2500 Index with higher priceto-book ratios and higher forecasted growth values. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
26
6.58 6.49
2006
2007
2008
Simon Property Group Inc. Public Storage Vornado Realty Trust Equity Residential Boston Properties Inc. AvalonBay Communities Inc. HCP Inc. Host Marriott Corp. Ventas Inc. Macerich Co. Total
12.5% 6.0% 5.7% 5.5% 5.2% 4.2% 4.1% 3.8% 3.6% 2.4% 53.0%
Sector Weights5
Sector Underweight/Overweight Against Benchmark 0.1 -1.2 0.0 -0.5 1.2 0.2 0.2 -2 -1 0 1 2
GICS Sub-Industries
Strategy Benchmark
Characteristics
Dividend Yield - Hist 1 Yr Wtd Avg Market Cap - Weighted Median $Bil Price/Earnings - Excl Neg Earnings
Hist 1 Yr Wtd Avg
Strategy
Benchmark
Quarterly Strategy Attribution Real Estate Strategy returned +6.6% for the first quarter of 2011, leading the +6.5% return of the MSCI U.S. REIT index. The Sector selection detracted modestly from returns relative to the MSCI U.S. REIT index. An underweight position in the Industrial sub-industry was the leading sub-industry position detracting from returns versus the benchmark. Stock selection added modestly to returns relative to the MSCI U.S. REIT index. Selections in the Office and Retail sub-industries added to relative returns while picks in Specialized detracted. In terms of individual names, an overweight in Simon Property Group, an underweight in Piedmont Office Realty Trust, and not owning General Growth Properties added to relative returns. Underweight positions in Duke Realty and Health Care REIT and not owning Strategic Hotels & Resorts detracted from relative returns.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI U.S. REIT Index is an independently maintained and widely published index comprised of equity securities issued by REITs. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
27
Pfizer Inc. Microsoft Corp. Oracle Corp. Google Inc. (Cl A) Wal-Mart Stores Inc. Procter & Gamble Co. Johnson & Johnson Coca-Cola Co. Merck & Co Inc Int'l. Business Machines Total
4.9% 4.6% 4.4% 4.3% 4.2% 3.9% 3.7% 3.6% 2.8% 2.8% 39.2%
8.81 16.93
Sector Weights6
Underweight/Overweight Against Benchmark Strategy Benchmark -3.8 Consumer Discretionary 7.5 % 11.3 % 15.3 24.1 Consumer Staples 8.8 -10.1 Energy 2.3 12.4 -14.1 Financials 2.0 16.1 17.6 28.8 Health Care 11.2 -6.5 Industrials 5.4 11.9 Sector
Characteristics6
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Dividend Yield - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil
x x % %
x x % %
Quarterly Strategy Attribution Tax-Managed U.S. Equities portfolio added 3.9% for the first quarter of 2011, while the Russell 3000 index added 6.4% and the The S&P 500 added 5.9%. Energy stocks dominated returns for the quarter, as oil prices continued to rise, reflecting Middle East turmoil. Financials and Consumer Staples were the weakest relative sectors for the period. Within the portfolio, the relative underperformance is attributed both to sector allocation and stock selection. Underweight exposure to Energy and overweight exposure to Consumer Staples both detracted from relative returns. Within stock selection, qualityinfluenced valuation-based stock selection strategies lagged. High quality stocks, which are well represented in the portfolio, lagged the market despite attractive valuations. Momentum-based stock selection strategies outpaced the market. Looking at some of the portfolios largest active positions, overweight exposure to high quality stocks Wal-Mart, Johnson & Johnson, and Microsoft detracted from performance. An overweight to Pfizer contributed positively.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 Market conditions, tax legislation and government regulations may limit the Strategys ability to utilize tax efficient strategies. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold investment through a tax-deferred arrangement. 4 The Russell 3000 + Index is an internally maintained benchmark computed by GMO, comprised of (i) the S&P 500 Index through 10/15/2007 and (ii) the Russell 3000 Index thereafter. The Russell 3000 Index is a trademark/service mark of the Frank Russell Company. Russell is a trademark of the Frank Russell Company. 5 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 6 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
28
4.03 3.36
2001
2002
2007
2008
Royal Dutch Shell PLC BP PLC Vodafone Group PLC HSBC Holdings PLC ENI S.p.A. Roche Holding AG Total S.A. Honda Motor Co. Ltd. British American Tobacco Hitachi Ltd. Total
2.9% 2.0% 1.9% 1.8% 1.8% 1.6% 1.6% 1.6% 1.6% 1.1% 17.9%
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Cash Flow - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Dividend Yield - Hist 1 Yr Wtd Avg
x x x %
x x x %
Regional Weights5
Region Underweight/Overweight Against Benchmark (%) -1.5 1.4 -0.7 -1.8 -6.2 6.8 2.0 -10 -5 0 5 10
Sector Weights5
Underweight/Overweight Against Benchmark Strategy Benchmark 2.8 Consumer Discretionary 13.0 % 10.2 % -0.7 Consumer Staples 9.0 9.7 5.8 Energy 14.3 8.5 -5.2 Financials 18.8 24.0 -1.5 Health Care 6.5 8.0 -0.1 Industrials 13.0 13.1 -0.2 Information Technology 4.6 4.8 -1.9 Materials 9.4 11.3 1.2 Telecom. Services 6.9 5.7 -0.4 Utilities 4.4 4.8 Sector -10 -5 0 5 10
GICS Sectors
Europe ex-UK United Kingdom Japan Southeast Asia Australia/New Zealand Emerging Cash
Quarterly Strategy Attribution International Active EAFE Strategy outperformed the MSCI EAFE index in the first quarter; the account rose 4.0% and the The benchmark gained 3.4%. Country selection was 0.4% ahead of the benchmark. An overweight position in Italy added 0.5% to returns after the German government pledged to protect the integrity of the euro zone. Stock selection beat the benchmark by 0.2% in the first quarter. Holdings outperformed in Hong Kong and Japan, where, fortunately, we did not hold some of the names most immediately damaged by the earthquake.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI EAFE (Europe, Australasia, and Far East) Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
29
3.86 4.52
2007
2008
Companhia Hering S/A Nabtesco Corp. COSMOS Pharmaceutical Nihon Kohden Corp. Autogrill S.p.A. Takata Corp. NHK Spring Co. Ltd. Societe BIC IMI PLC Diploma PLC Total
2.2% 1.4% 1.1% 1.1% 1.0% 1.0% 1.0% 0.9% 0.9% 0.9% 11.5%
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Cash Flow - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Dividend Yield - Hist 1 Yr Wtd Avg
x x x %
x x x %
Regional Weights5
Region Underweight/Overweight Against Benchmark (%) -4.7 1.3 3.3 0.1 -9.1 -2.7 8.9 2.8 -10 0 10 20
Sector
Sector Weights5
Underweight/Overweight Against Benchmark Strategy Benchmark 9.1 26.1 % Consumer Discretionary 17.0 % 0.4 Consumer Staples 5.4 5.0 -0.1 Energy 6.3 6.4 -5.0 Financials 12.3 17.3 -0.1 Health Care 4.9 5.0 5.7 Industrials 27.8 22.1 -3.2 Information Technology 5.9 9.1 -6.1 Materials 8.4 14.5 0.1 Telecom. Services 1.4 1.3 -0.9 Utilities 1.4 2.3 -10 -5 0 5 10
GICS Sectors
Europe ex-UK United Kingdom Japan Southeast Asia Canada Australia/New Zealand Emerging Cash
-20
Quarterly Strategy Attribution International Active Foreign Small Companies Strategy underperformed the S&P Developed ex-U.S. Small Cap index in the first The quarter, gaining 3.9% while the benchmark rose 4.5%. Country selection was 0.3% behind the benchmark. Underweight positions in the French and Spanish markets subtracted 0.4% and 0.2%, respectively, from returns after the German government pledged to protect the integrity of the euro zone. However, an overweight position in Italy added 0.3% to performance. Stock selection lagged the benchmark by 0.4% in the first quarter. Our holdings underperformed in France, the Netherlands, and the emerging markets. On the positive side, stock selection in Canada and the United Kingdom helped returns.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The S&P Developed ex-U.S. Small Cap Index is an independently maintained and widely published index comprised of the small capitalization stock component of the S&P Broad Market Index (BMI). The BMI includes listed shares of companies from developed and emerging countries with a total available market capitalization (float) of at least the local equivalent of $100 million USD. The S&P Developed ex-U. S. Small Cap Index represents the bottom 15% of available market capitalization (float) of the BMI in each country. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
30
2001 2002 Strategy -12.10 -0.59 MSCI EAFE Value -18.52 -15.91 MSCI EAFE -21.44 -15.94
Total S.A. Sanofi-Aventis S.A. GlaxoSmithKline PLC Royal Dutch Shell PLC ENI S.p.A. AstraZeneca PLC Enel S.p.A. Novartis AG Takeda Pharmaceutical Co. Vodafone Group PLC Total
3.9% 3.6% 3.5% 3.2% 3.1% 2.9% 2.0% 2.0% 1.7% 1.3% 27.2%
Characteristics5
M SCI Strategy EAFE Value M SCI EAFE
Price/Earnings - Hist 1 Yr Wtd Med 11.8 x Price/Cash Flow - Hist 1 Yr Wtd Med 6.3 x Price/Book - Hist 1 Yr Wtd Avg 1.3 x Return on Equity - Hist 1 Yr Med 11.5 % Market Cap - Weighted Median $Bil $27.6 3.8 % Dividend Yield - Hist 1 Yr Wtd Avg
x x x % %
x x x % %
Regional Weights
Region
Sector Weights
Sector
Europe ex-UK United Kingdom Japan Southeast Asia Canada Australia/New Zealand -7.7 Cash
-10
Underweight/Overweight Against M SCI EAFE Value (%) -1.1 0.1 4.5 0.8 1.6 1.9 -5 0 5 10
Underweight/Overweight Against M SCI EAFE Value Strategy Benchmark 5.3 Consumer Discretionary 12.6 % 7.3 % 2.2 Consumer Staples 4.1 1.9 3.8 Energy 16.1 12.3 -20.3 Financials 15.2 35.5 7.6 Health Care 16.7 9.1 3.0 Industrials 10.4 7.4 0.6 Information Technology 3.3 2.7 0.6 Materials 7.1 6.5 -1.7 Telecom. Services 8.1 9.8 -1.2 Utilities 6.3 7.5 -30 -15 0 15 30
GICS Sectors
GMO 2011
31
YTD 2011 1.78 2.22 3.36 2003 30.40 31.99 2004 20.03 16.12
One Year 13.92 12.55 10.42 2005 13.16 13.28 2006 24.56 22.33
Since Inception 8.05 6.35 6.92 2009 24.81 29.36 2010 13.94 12.25
0.59 -15.94
38.59
20.25
13.54
26.34
11.17 -43.38
31.78
7.75
Nestle S.A. GlaxoSmithKline PLC Novo Nordisk A/S Roche Holding AG British American Tobacco Novartis AG SAP AG DaimlerChrysler AG Canon Inc. Honda Motor Co. Ltd. Total
3.6% 3.5% 3.0% 2.4% 1.7% 1.6% 1.6% 1.3% 1.2% 1.1% 21.0%
Characteristics5
M SCI Strategy EAFE Growth M SCI EAFE
Price/Earnings - Hist 1 Yr Wtd Med Earnings/Share - F'cast LT Med Growth Rate Price/Book - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil Dividend Yield - Hist 1 Yr Wtd Avg
x x x % %
x x x % %
x x x % %
Regional Weights5
Region Underweight/Overweight Against M SCI EAFE Growth (%) 1.3 0.6 -0.9 1.8 3.2 1.0 -5 0 5 10
Sector Weights5
Sector Underweight/Overweight Against M SCI EAFE Growth Strategy Benchmark 3.4 Consumer Discretionary 16.3 % 12.9 % -3.7 Consumer Staples 13.6 17.3 -1.2 Energy 3.6 4.8 -4.9 Financials 7.9 12.8 9.7 16.6 Health Care 6.9 -1.5 Industrials 17.2 18.7 1.1 Information Technology 8.0 6.9 -5.7 Materials 10.2 15.9 3.1 Telecom. Services 4.7 1.6 -0.3 Utilities 2.0 2.3 -10 -5 0 5 10
GICS Sectors
Europe ex-UK United Kingdom Japan Southeast Asia Canada Australia/New Zealand -7.1 Cash
-10
GMO 2011
32
3.67 3.36
2007
2008
GlaxoSmithKline PLC Total S.A. Royal Dutch Shell PLC Sanofi-Aventis S.A. ENI S.p.A. AstraZeneca PLC Novartis AG Enel S.p.A. Novo Nordisk A/S Vodafone Group PLC Total
3.1% 3.0% 2.9% 2.9% 2.6% 2.4% 2.1% 1.6% 1.5% 1.4% 23.5%
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Earnings/Share - F'cast LT Med Growth Rate Price/Book - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil Dividend Yield - Hist 1 Yr Wtd Avg
x x x % %
x x x % %
Regional Weights5
Region Underweight/Overweight Against Benchmark (%) 0.7 -0.5 3.7 0.1 1.4 -5.9 0.5 -5 0 5 10
Sector
Sector Weights5
Underweight/Overweight Against Benchmark Strategy Benchmark 4.8 Consumer Discretionary 15.0 % 10.2 % -4.0 Consumer Staples 5.7 9.7 5.1 Energy 13.6 8.5 -12.4 Financials 11.6 24.0 7.7 Health Care 15.7 8.0 -0.7 Industrials 12.4 13.1 -0.4 Information Technology 4.4 4.8 -2.4 Materials 8.9 11.3 1.8 Telecom. Services 7.5 5.7 0.4 Utilities 5.2 4.8
Europe ex-UK United Kingdom Japan Southeast Asia Canada Australia/New Zealand Cash
-10
-20
-10
10
20
GICS Sectors
GMO 2011
33
0.43 0.89
2001
2002
2007
2008
GlaxoSmithKline PLC Nestle S.A. Total S.A. Sanofi-Aventis Novo Nordisk A/S AstraZeneca PLC Novartis AG Eni S.p.A Roche Holding AG Takeda Pharmaceutical Co. Total
3.5% 2.3% 2.2% 2.1% 2.0% 1.8% 1.8% 1.5% 1.5% 1.2% 19.9%
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Wtd Med Market Cap - Weighted Median $Bil Dividend Yield - Hist 1 Yr Wtd Avg
x x % %
x x % %
Regional Weights5
Region Underweight/Overweight Against Benchmark (%) 0.1 -1.9 -0.6 0.8 1.0 2.2 5.8 -10 -5 0 5 10
Sector
Sector Weights5
Underweight/Overweight Against Benchmark Strategy Benchmark Consumer Discretionary 14.5 % 10.2 % 4.3 -0.8 Consumer Staples 8.9 9.7 1.3 Energy 9.8 8.5 -12.5 Financials 11.5 24.0 8.6 Health Care 16.6 8.0 0.8 Industrials 13.9 13.1 0.9 Information Technology 5.7 4.8 -2.6 Materials 8.7 11.3 0.7 Telecom. Services 6.4 5.7 -0.7 Utilities 4.1 4.8 -20 -10 0 10 20
GICS Sectors
United States Europe ex-UK United Kingdom Japan Southeast Asia Canada Australia/New Zealand -7.4 Cash
Quarterly Strategy Attribution Currency Hedged International Equity Strategy returned +0.4% during the first quarter of 2011. This was behind the MSCI The EAFE Hedged index, which returned +0.9%. Most currencies appreciated on average relative to the U.S. dollar in the quarter. euro reversed course this quarter and was the strongest major currency among those in EAFE. It gained 6% as European The sovereign debt concerns were outweighed by the unfortunate events in Japan. The yen weakened by 2%, while most other EAFE currencies strengthened. The unhedged EAFE index returned +3.4%. Currency Hedged International Equity Strategy invests in the International Intrinsic Value Strategy (50%) and International The Growth Strategy (50%). Performance of the Currency Hedged International Equity Strategy relative to the MSCI EAFE Hedged index was hurt by the underperformance of both the International Growth Strategy and the International Intrinsic Value Strategy relative to their respective style benchmarks.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI EAFE (Europe, Australasia, and Far East) Index (Hedged) (net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks currency hedged into U.S. dollars. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
34
-1.51 -4.44
2007
2008
KDDI Corp. Nippon T & T Corp. Mizuho Financial Group NTT DoCoMo Inc. Daito Trust Construction Takeda Pharmaceutical Co. Resona Holdings Inc. Sumitomo Mitsui Financial JX Holdings Inc. Sumitomo Corp. Total
4.9% 4.2% 3.5% 3.4% 2.3% 1.9% 1.7% 1.5% 1.5% 1.4% 26.3%
Characteristics5
Strategy Benchmark
% Negative Earnings 7.6 % Price/Earnings - Excl Neg Earn Hist 1 Yr Wtd Med 10.8 x 11.7 x Price/Earnings - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg 0.8 x 7.4 % Return on Equity - Hist 1 Yr Med $2.5 Market Cap - Weighted Median $Bil 2.6 % Dividend Yield - Hist 1 Yr Wtd Avg
% x x x % %
Sector Weights5
Sector Underweight/Overweight Against Benchmark Strategy Benchmark -2.9 Consumer Discretionary 16.6 % 19.5 % 1.9 Consumer Staples 7.5 5.6 3.0 Energy 4.7 1.7 3.9 Financials 21.0 17.1 -1.0 Health Care 4.7 5.7 -1.0 Industrials 20.6 21.6 Information Technology -9.1 3.8 12.9 -2.0 Materials 6.6 8.6 8.8 12.5 Telecom. Services 3.7 -1.6 Utilities 2.0 3.6 -10 -5 0 5 10
GICS Sectors
Quarterly Strategy Attribution Japan Equity Strategy returned -1.5% during the first quarter of 2011. This was ahead of its benchmark, the MSCI Japan IMI The index, which returned -4.4%. Within the portfolio, stock selection and the resulting sector exposures were the primary reasons for the outperformance. light of the tragic events in Japan since March 11 and the market volatility that followed, our stocks held their value relatively well. In Performance was particularly good within Industrials and Utilities. Having no exposure to Tokyo Electric Power was the most significant contributor to the outperformance. Overweight positions in telecom company KDDI Corp. and industrial company PentaOcean Construction Co also added value. Individual stock positions that were significant detractors included underweights to auto maker Toyota Motor, software company Softbank, and machinery company Komatsu, all of which outperformed. Sector exposures also helped relative performance due primarily to our overweight to Telecommunication Services and Energy, which both outperformed, and our underweight to Utilities, which lagged.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI Japan IMI (Investable Market Index Series) ++ Index is comprised of (i) the MSCI Japan (MSCI Standard Index Series, net of withholding tax) from 12/31/2005 to 6/30/2008 and (ii) the MSCI Japan IMI (MSCI Standard Index Series, net of withholding tax) thereafter. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
35
2001 2002 -1.25 Strategy -6.70 MSCI EAFE SC + -15.70 -7.29 MSCI EAFE -21.44 -15.94
Arkema Advance Residence DCC PLC Lanxess AG Inchcape PLC IMI PLC Valeo S.A. Rhodia S.A. Hugo Boss AG Pfd. Melrose PLC Total
1.9% 1.1% 1.1% 1.0% 1.0% 0.9% 0.9% 0.8% 0.8% 0.8% 10.3%
Characteristics5
Strategy M SCI EAFE Small Cap M SCI EAFE
Price/Earnings - Hist 1 Yr Wtd Med Price/Cash Flow - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil Dividend Yield - Hist 1 Yr Wtd Avg
x x x % %
5
x x x % %
x x x % %
Regional Weights5
Region Underweight/Overweight Against M SCI EAFE Small Cap (%) -2.1 0.8 4.5 0.4 1.7 2.8 1.4 -10 -5 0 5 10
Sector
Sector Weights
Europe ex-UK United Kingdom Japan Southeast Asia Canada Australia/New Zealand -9.4 Emerging Cash
Underweight/Overweight Against M SCI EAFE Small Cap Strategy Benchmark 7.2 Consumer Discretionary 24.3 % 17.1 % 0.3 Consumer Staples 6.4 6.1 -2.5 Energy 3.0 5.5 -3.7 Financials 15.3 19.0 -0.5 Health Care 4.8 5.3 -0.2 Industrials 24.2 24.4 -3.7 Information Technology 5.0 8.7 4.1 Materials 15.4 11.3 -0.5 Telecom. Services 0.4 0.9 -0.6 Utilities 1.2 1.8 -10 -5 0 5 10
GICS Sectors
36
GlaxoSmithKline PLC Total S.A. Sanofi-Aventis S.A. Royal Dutch Shell PLC ENI S.p.A. AstraZeneca PLC Novartis AG Novo Nordisk A/S Enel S.p.A. Takeda Pharmaceutical Co. Total
3.1% 3.0% 2.9% 2.9% 2.6% 2.6% 1.9% 1.6% 1.6% 1.4% 23.6%
Characteristics6
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Cash Flow - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Dividend Yield - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil
x x x % %
x x x % %
Regional Weights6
Region Underweight/Overweight Against Benchmark (%) -0.4 -1.0 3.1 -0.2 2.2 -5.6 1.9 -5 0 5 10
Sector Weights6
Underweight/Overweight Against Benchmark Strategy Benchmark 5.1 Consumer Discretionary 15.3 % 10.2 % -3.7 Consumer Staples 6.0 9.7 5.4 Energy 13.9 8.5 -13.5 Financials 10.5 24.0 7.8 Health Care 15.8 8.0 0.1 Industrials 13.2 13.1 -0.5 Information Technology 4.3 4.8 -2.9 Materials 8.4 11.3 1.3 Telecom. Services 7.0 5.7 0.8 Utilities 5.6 4.8 Sector -20 -10 0 10 20
GICS Sectors
Europe ex-UK United Kingdom Japan Southeast Asia Canada Australia/New Zealand Cash
-10
GMO 2011
37
4.70 1.70
2007
2008
OAO Gazprom ADR 5.5% Samsung Electronics Co. 3.7% Lukoil Oil Company ADR 2.9% China Mobile Ltd. (ADS) 2.2% Petroleo Brasileiro S/A 2.1% Vale S.A. (ADS) 2.1% Inds. & Comm. Bank China 1.6% Taiwan Semicond Manuf Co. 1.5% POSCO (ADR) 1.4% Banco Bradesco S/A ADS 1.4% Total 24.4%
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Cash Flow - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Avg Market Cap - Weighted Median $Bil Dividend Yield - Hist 1 Yr Wtd Avg
x x x % %
x x x % %
Regional Weights
Region
Sector Weights
Underweight/Overweight Against Benchmark (%) -1.9 13.1 -6.7 -2.4 -2.7 0.6 -20 -10 0 10 20
Underweight/Overweight Against Benchmark Strategy Benchmark Sector -3.2 Consumer Discretionary 4.6 % 7.8 % -5.3 Consumer Staples 1.2 6.5 8.6 22.5 Energy 13.9 -0.2 Financials 22.7 22.9 -0.5 Health Care 1.0 1.5 -2.8 Industrials 5.9 8.7 -2.9 Information Technology 11.3 14.2 0.5 Materials 15.2 14.7 6.2 Telecom. Services 12.6 6.4 -0.5 Utilities 2.9 3.4 -10 -5 0 5 10
GICS Sectors
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The S&P/IFCI Composite Index is an independently maintained and widely published index comprised of emerging markets stocks. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
38
4.90 1.70
2007
2008
OAO Gazprom ADR Samsung Electronics Co. Lukoil Oil Company ADR Petroleo Brasileiro S/A China Mobile Ltd. (ADS) Vale S.A. (ADS) Inds. & Comm. Bank China Taiwan Semicond Manuf Co. POSCO (ADR) Astra International Total
5.6% 3.9% 2.9% 2.2% 2.1% 2.0% 1.7% 1.5% 1.5% 1.4% 24.8%
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Cash Flow - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Avg Market Cap - Weighted Median $Bil Dividend Yield - Hist 1 Yr Wtd Avg
x x x % %
x x x % %
Regional Weights
Region
Sector Weights
Underweight/Overweight Against Benchmark (%) -2.4 12.7 -6.6 -2.1 -3.5 2.0 -20 -10 0 10 20
Underweight/Overweight Sector Against Benchmark Strategy Benchmark -3.8 Consumer Discretionary 4.0 % 7.8 % -5.1 Consumer Staples 1.4 6.5 8.7 22.6 Energy 13.9 0.0 Financials 22.9 22.9 -0.7 Health Care 0.8 1.5 -3.1 Industrials 5.6 8.7 -2.3 Information Technology 11.9 14.2 0.3 Materials 15.0 14.7 6.6 Telecom. Services 13.0 6.4 -0.5 Utilities 2.9 3.4
-10
-5
10
GICS Sectors
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The S&P/IFCI Composite Index is an independently maintained and widely published index comprised of emerging markets stocks. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
39
6.20 4.80
2001
2002
2007
2008
Pfizer Inc. 2.2% Vodafone Group PLC 2.2% Navistar International Corp. 1.9% WellPoint Inc. 1.9% DaimlerChrysler AG 1.9% Royal Dutch Shell PLC 1.8% British American Tobacco 1.7% Comcast Corp. (Cl A) 1.7% QUALCOMM Inc. 1.6% Microsoft Corp. 1.5% Total 18.4%
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Cash Flow - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Dividend Yield - Hist 1 Yr Wtd Avg
x x x %
x x x %
Regional Weights5
Region Underweight/Overweight Against Benchmark (%) -7.8 1.3 3.8 0.1 -0.8 -3.7 -3.8 6.9 -5 0 5 10
Sector
Sector Weights5
Underweight/Overweight Against Benchmark Strategy Benchmark Consumer Discretionary 17.2 % 10.1 % 7.1 -1.3 Consumer Staples 8.1 9.4 2.4 Energy 14.4 12.0 -1.5 Financials 18.7 20.2 -2.3 Health Care 6.9 9.2 -0.6 Industrials 11.0 11.6 Information Technology -5.9 5.5 11.4 2.2 Materials 10.4 8.2 2.1 Telecom. Services 6.3 4.2 -2.1 Utilities 1.7 3.8 -10 -5 0 5 10
GICS Sectors
United States Europe ex-UK United Kingdom Japan Southeast Asia Canada Australia/New Zealand Emerging Cash
-10
Quarterly Strategy Attribution Global Active Equity Strategy outperformed the MSCI World index by 1.4 percentage points in the first quarter, gaining 6.2% The while the benchmark rose 4.8%. Country selection was positive in the quarter. An overweight position in Italy added 0.2% to returns after the German government pledged to protect the integrity of the euro zone. Sector selection was also positive. An overweight position in Energy, the best performing sector in the quarter, helped returns, as did an underweight position in Information Technology. On the negative side, an overweight position in the Consumer Discretionary sector subtracted from performance. bulk of the value added came from stock selection. Positions in Canada, Japan, Germany, the United States, and the emerging The markets all outperformed. On the negative side, holdings in France lagged the benchmark.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI World Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global developed markets. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
40
4.68 4.80
2001
2002
2007
2008
Johnson & Johnson Royal Dutch Shell PLC Apple Inc. Coca-Cola Co. Google Inc. (Cl A) ENI S.p.A. Merck & Co Inc Wal-Mart Stores Inc. PepsiCo Inc. Pfizer Inc. Total
3.5% 3.1% 2.8% 2.3% 2.2% 1.7% 1.6% 1.6% 1.5% 1.3% 21.6%
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Cash Flow - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Wtd Med Market Cap - Weighted Median $Bil Dividend Yield - Hist 1 Yr Wtd Avg
x x x % %
x x x % %
Regional Weights5
Region Underweight/Overweight Against Benchmark (%) -5.4 2.0 1.4 3.1 -2.6 1.5 -10 -5 0 5 10
Sector Weights5
Sector Underweight/Overweight Against Benchmark Strategy Benchmark 1.1 Consumer Discretionary 11.2 % 10.1 % -0.8 Consumer Staples 8.6 9.4 1.6 Energy 13.6 12.0 -6.9 Financials 13.3 20.2 5.7 Health Care 14.9 9.2 1.1 Industrials 12.7 11.6 1.0 Information Technology 12.4 11.4 -2.3 Materials 5.9 8.2 -0.2 Telecom. Services 4.0 4.2 -0.5 Utilities 3.3 3.8 -10 -5 0 5 10
GICS Sectors
North America Europe ex-UK United Kingdom Japan Pacific ex-Japan Cash
GMO 2011
41
2004 Strategy 14.02 MSCI World Growth 13.57 MSCI World 14.56
Apple Inc. Johnson & Johnson Coca-Cola Co. Google Inc. (Cl A) PepsiCo Inc. Royal Dutch Shell PLC 3M Co. QUALCOMM Inc. ENI S.p.A. Abbott Laboratories Total
4.6% 3.4% 2.9% 2.8% 2.4% 2.0% 1.2% 1.2% 1.1% 1.1% 22.7%
Characteristics5
M SCI M SCI Strategy World Growth World
Price/Earnings - Hist 1 Yr Wtd Med Earnings/Share - F'cast LT Med Growth Rate Price/Book - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil Dividend Yield - Hist 1 Yr Wtd Avg
x x x % %
x x x % %
x x x % %
Regional Weights5
Region Underweight/Overweight Against M SCI World Growth (%) 6.7 -1.1 -1.9 -2.3 -3.0 1.6 -10 -5 0 5 10
Sector Weights5
Underweight/Overweight Against M SCI World Growth Consumer Discretionary 0.6 Consumer Staples -4.2 Energy 3.9 Financials 0.8 2.7 Health Care 0.0 Industrials Information Technology 0.5 -4.7 Materials 0.1 Telecom. Services 0.2 Utilities Sector -6 -3 0 3 6 Strategy Benchmark
North America Europe ex-UK United Kingdom Japan Pacific ex-Japan Cash
14.2 % 9.3 12.0 9.7 11.1 15.1 19.0 6.9 1.3 1.3
13.6 % 13.5 8.1 8.9 8.4 15.1 18.5 11.6 1.2 1.1
GICS Sectors
GMO 2011
42
1.47 0.42
Characteristics4,5
Modified Duration Average Coupon Average Maturity Average Yield Emerging Cntry Debt Exp. 4.3 4.3 6.1 6.9 3 % Yrs. % %
Regional Weights4,6
Underweight/Overweight Against Benchmark (%)
Currency Weights4
Underweight/Overweight Against Benchmark (%)
-0.6 4.7
5.3
10
Quarterly Strategy Attribution Core Plus Bond Strategy returned +1.5% in the first quarter, outperforming the return of its benchmark, the Barclays Capital U.S. The Aggregate index, by 1.0%. After reporting a total return loss in Q4 2010, the Barclays Capital U.S. Aggregate index reversed course during the first quarter of 2011, returning +0.4%. Tightening sector spreads were responsible for gains, as rising U.S. Treasury yields weighed on performance. Ten-year yields rose by 15 basis points to 3.4%, and U.S. Treasury 2-year yields rose by 19 basis points to 0.8%. overall option-adjusted spread of the Barclays Capital U.S. Aggregate index tightened by 6 basis points, with sector spreads The tightening by as much as 35 basis points (CMBS), and by as little as 4 basis points (U.S. Agency). CMBS spreads tightened the most during the quarter, due to better than expected pricing on new mid-quarter deals. Exposures to GMO Short Duration Collateral Fund (SDCF) and GMO World Opportunity Overlay Fund (Overlay Fund) were the largest positive contributors for an eighth consecutive quarter. Developed markets currency selection also contributed positively, followed by contributions from exposure to emerging country debt via the GMO Emerging Country Debt Fund, and developed markets interest-rate positioning.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Barclays Capital U.S. Aggregate Index is an independently maintained and widely published index comprised of U.S. fixed rate debt issues having a maturity of at least one year and rated investment grade or higher. 3 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 5 Please note portfolio yield includes the yield on the portfolios cash assets, for example, via the Short Duration Collateral Fund. 6 Regional weights are duration adjusted. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
43
2.92 2.08
2007
2008
Characteristics4,5
Modified Real Rate Duration Average Coupon Average Maturity Average Yield Emerging Cntry Debt Exp. 7.0 2.1 7.8 7.4 3 % Yrs. % %
Regional Weights4,6
Underweight/Overweight Against Benchmark (%)
Currency Weights4
Underweight/Overweight Against Benchmark (%)
-0.8 4.6
5.3
10
Quarterly Strategy Attribution Inflation Indexed Plus Bond Strategy returned +2.9% in the first quarter, outperforming the Barclays Capital U.S. Treasury The Inflation Notes index by 0.8%. After reporting total return losses in Q4 2010, the index reversed course, reporting +2.1% for the first quarter of 2011. The real yield curve steepened during the quarter, as real 2-year yields fell by 94 basis points, real 10-year yields fell by only 1 basis point, and longer-dated real yields (> 20 years) rose by 10 basis points. Exposures to GMO Short Duration Collateral Fund (SDCF) and GMO World Opportunity Overlay Fund (Overlay Fund) were the largest positive contributors for an eighth consecutive quarter. Exposure to emerging country debt via the GMO Emerging Country Debt Fund also contributed positively during the quarter, followed by contributions from developed markets interest-rate positioning and developed markets currency selection.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Barclays Capital U.S. Treasury Inflation Notes Index is an independently maintained and widely published index comprised of Inflation-Protection Securities issued by the U.S. Treasury (TIPS). 3 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 5 Please note portfolio yield includes the yield on the portfolios cash assets, for example, via the Short Duration Collateral Fund. 6 Regional weights are duration adjusted. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
44
YTD 2011 1.87 0.87 2002 17.15 22.10 2003 26.95 18.63 2004 14.88 12.04 2005 -8.08 -9.24
One Year 16.21 9.83 2006 9.33 6.84 2007 3.66 11.30
Characteristics4,5
Modified Duration Average Coupon Average Maturity Yield to Maturity Emerging Cntry Debt Exp. 6.2 3.3 7.8 6.8 3 % Yrs. % %
Regional Weights4,6
Underweight/Overweight Against Benchmark (%)
Currency Weights4
Underweight/Overweight Against Benchmark (%)
-1.9 5.1
7.1
10
GMO 2011
45
Inception: 9/30/94; Benchmark: J.P. Morgan Non-U.S. Government Bond Index (Hedged) (ex-Japan) +
Average Annual Total Return (%)
YTD 2011 -0.37 -0.97 2002 3.01 7.01 2003 8.77 1.99 2004 8.91 6.73 2005 7.25 6.54
One Year 5.51 0.52 2006 2.45 1.79 2007 -4.00 3.42
Strategy Benchmark
6.35 6.03
Characteristics4,5
Modified Duration Average Coupon Average Maturity Average Yield Emerging Cntry Debt Exp. 5.8 4.6 8.5 7.7 3 % Yrs. % %
Regional Weights4,6
Underweight/Overweight Against Benchmark (%) -0.1 4.8 -19.7 3.4 -30 -15 0 15 30
Currency Weights4
Underweight/Overweight Against Benchmark (%)
5.1
10
GMO 2011
46
YTD 2011 1.66 0.54 2002 13.74 19.38 2003 21.99 14.51 2004 12.12 10.10 2005 -5.84 -6.53
One Year 13.80 8.15 2006 7.94 5.94 2007 2.58 10.81
Characteristics4,5
Modified Duration Average Coupon Average Maturity Average Yield Emerging Cntry Debt Exp. 5.6 3.5 7.2 6.6 3 % Yrs. % %
Regional Weights4,6
Underweight/Overweight Against Benchmark (%)
Currency Weights4
Underweight/Overweight Against Benchmark (%)
-0.4 4.6
5.6
10
GMO 2011
47
2.45 1.02
2007
2008
Regional Weights4
Underweight/Overweight Against Benchmark (%)
0.5
Characteristics4
Yield to Maturity Sovereign Spread Portfolio Maturity Modified Duration Average Credit Rating 5.9 % 253 Bps. 17.4 Yrs. 7.2 BB
GMO 2011
48
2.65 2.70
Characteristics4
Yield to Maturity Modified Duration 6.8 % 5.1
Regional Weights4,5
Underweight/Overweight Against Benchmark (%)
Currency Weights4
Underweight/Overweight Against Benchmark (%)
-4.4
Asia CEEMEA*
12.6
Latin America
-10
10
20
GMO 2011
49
1.98 0.04
Characteristics4,5
Modified Duration Average Coupon Average Maturity Average Yield 5.4 1.9 % 6.4 Yrs. 0.6 %
Quarterly Strategy Attribution Asset Allocation Bond Strategy returned +2.0% during the first quarter, outperforming the Citigroup 3-Month Treasury Bill index The return by 1.9%. U.S. 3-month Treasury Bill rates fell by 8 basis points to end the quarter at 0.09%.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. 3 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 5 Please note portfolio yield includes the yield on the portfolios cash assets, for example, via the Short Duration Collateral Fund. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
50
2.72 3.03
2001
Strategy Composition3
Cash & Cash Special Equivalents Situations 2.4% 4.3% Alpha Only 14.0% Asset Allocation Bond 4.3% Emerging Country Debt 0.5% Strategic Fixed Income 10.5% Domestic Bond 3.0% International Intrinsic Value 4.4% International Growth 4.3% International Core Equity 14.6%
Benchmark Composition
(65% MSCI ACWI / 35% Barclays U.S. Aggregate)
Quality 24.6%
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The blended Global Balanced Asset Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, MSCI ACWI (MSCI Standard Index Series, net of withholding tax) and Barclays Capital Aggregate or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 3 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
51
2.10 2.99
Strategy Benchmark
10.11 7.45
Strategy Composition3
U.S. Core 2.2% Quality 24.0%
Benchmark Composition
(60% MSCI World / 20% Citigroup 3-Mo. T-Bill / 20% BC U.S. Agg.)
Multi-Strategy 27.0% Special Situations 3.9% Alpha Only 3.4% Cash & Cash Equivalents 1.3% Asset Allocation Bond 1.1%
International Intrinsic Value 12.9% International Growth 13.1% Flexible Equities 1.2%
Emerging Country Debt Emerging Strategic Domestic 0.4% Markets Fixed Income Bond 3.1% 5.2% 1.1%
Quarterly Strategy Attribution Real Return Global Balanced Asset Allocation Strategy returned +2.1% for the quarter, underperforming its benchmark by 0.9%. Asset The
allocation and implementation shared equally in causing the underperformance.
Within asset allocation decisions, our underweight to equities, generally, and our out-of-benchmark allocation to emerging markets, which trailed the
overall global market, were the main drivers of underperformance.
Within implementation, there was positive alpha generation from a good number of the underlying fixed income strategies. In addition, the Emerging
Markets Strategy beat its benchmark by close to 300 basis points. Still, this was more than negated by weak performance from the Quality Strategy. The absolute return portfolio had returns barely above cash.
risk markets continue to rally, we are beginning to further trim our risk exposures, raising cash and cash substitutes. Despite the poor relative As
performance of the Quality Strategy over the recent year and a half, its defensive nature gives us comfort in a world of overpriced assets. In addition, some of the anti-risk themes within the absolute return portfolio afford protection in a world that we see as growing dangerously overpriced.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The blended Real Return Global Balanced Asset Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World (MSCI Standard Index Series, net of withholding tax), Barclays Capital Aggregate, and Citigroup 3-Month T-Bill or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 3 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
52
1.42 2.71
Strategy Composition3
Multi-Strategy 20.0% Quality 21.0%
Special Situations 3.8% Alpha Only 16.2% Alternative Asset Opportunity 0.6% Cash & Cash Equivalents 1.3%
Currency Hedged Int'l. Equity 7.8% Flexible Equities 1.7% Emerging Markets 8.6% Strategic Asset Fixed Income Emerging Allocation Bond Country Debt 10.6% 7.2% 1.4%
Quarterly Strategy Attribution Global Allocation Absolute Return Strategy returned +1.4% in the first quarter. The long exposure to equity markets helped performance this quarter, as the equity rally continued throughout the period. All of the The largest equity and fixed income strategies posted positive performance. The only notable headwind came from negative absolute performance from the Alpha Only Strategy.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The CPI (Consumer Price Index) Plus 5% Index is an internally maintained (monthly) benchmark based on the CPI Index for All Urban Consumers US All Items which is published monthly by the U.S. government as an indicator of changes in price levels (or inflation) paid by urban consumers for a representative basket of goods and services. The CPI Plus 5% Index is calculated by adding 5% annualized to the return of the CPI Index. 3 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 4 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross.
1
53
1.13 1.47
Equities4
Exposure (%)
Quality Emerging Equities Opportunistic Japanese Equities International Equities S&P 500 Junk S&P Midcap Russell 2000
-40
23 11 5 4 -2 -4 -6 -11 -20 0 20 40
Inflation Deflation
Dividend Swaps Japanese Inflation UK 50 Yr. IL GILTS -15 Japanese Gov't. Bonds New Zealand 10 Yr. Bonds Australian 10 Yr. Bonds
-20 -10
11 2 -3 5 13 0 10 20
Currencies4
Exposure (%)
Absolute Return4
Exposure (%)
U.S. Dollar South Korean Won Singapore Dollar New Zealand Dollar Japanese Yen Australian Dollar
-10
6 2 2 -1 -4 -5 -5 0 5 10
20 5 3 15 30
Quarterly Strategy Attribution Real Return Asset Allocation Strategy returned +1.1% in the first quarter, underperforming its target by 0.3%. The biggest drag on performance continued to be the long high quality versus the short low quality position. Although the quality The position did contribute 80 basis points to performance, this was more than offset by the combined performance of the low quality and small cap short positions. Our long emerging equities position delivered 50 basis points, while our international equity book was essentially flat. Taken together, our equity book was a net drag on performance, subtracting 21 basis points. We did change the equity portfolio modestly during the last month of the quarter, shifting about 5% into Japanese stocks as a result of significant weakness in the Japanese equity market. With the equity portfolio a net drag on performance, the remainder of the portfolio performed well enough to move returns into positive territory. The biggest contributor was the dividend swaps, which added 90 basis points. Pricing continued to improve in European dividends despite ongoing weakness in local stock indices. In fixed income positions, our long Australian and New Zealand bonds against shorts in Japanese nominal bonds and long-term British index linked bonds were both positive and, combined, contributed an additional 30 basis points. Other small winners included our currency positions and opportunistic credit. The 20% Multi-Strategy allocation was flat for the quarter, while the 3% Credit Opportunity Strategy allocation rose 81 basis points, contributing modestly to the positive return for the quarter.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The CPI (Consumer Price Index) for All Urban Consumers US All Items is published monthly by the U.S. government as an indicator of changes in price levels (or inflation) paid by urban consumers for a representative basket of goods and services. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
54
YTD 2011 3.55 4.57 2002 2003 38.75 33.76 2004 17.62 14.86 2005 12.51 9.95
Strategy Composition3
Emerging Markets 16.9% Alpha Only 1.0% U.S. Core 5.1%
Benchmark Composition
(MSCI ACWI)
Quarterly Strategy Attribution Global All Country Equity Allocation Strategy returned +3.5% for the quarter, underperforming its benchmark by 1.0%. Asset The allocation and implementation shared equally in causing the underperformance. global equity rally was led by the U.S. this quarter, and our modest underweight acted as a drag on relative performance. In The addition, our overweight in emerging market equities acted as a drag, as emerging equities underperformed their developed country counterparts. From an implementation perspective, the Quality Strategy underperformed its benchmark by over 200 basis points and was responsible for the lions share of this quarters shortfall.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The blended Global All Country Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI ACWI (All Country World Index) (MSCI standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 3 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
55
YTD 2011 3.52 4.80 2002 2003 38.64 32.32 2004 17.36 13.64 2005 12.26 9.42
Strategy Composition3
Flexible Equities 2.0% Emerging Markets 3.2% U.S. Core 9.1%
Benchmark Composition
(MSCI World Index)
Strategy
6% 3% 0% -3% -6% -4.6% U.S. Equities International Equities +4.6%
Quarterly Strategy Attribution Global Developed Equity Allocation Strategy returned +3.5% for the quarter, underperforming its benchmark by 1.3%. Our asset The allocation decisions detracted 0.1%, while implementation detracted 1.2%. Global markets continued their rally, with U.S. equity markets leading the way. Our modest underweight to the U.S. was a slight drag on performance. Our decision to hold an out-of-benchmark exposure in emerging equity markets also detracted, as these stocks underperformed their developed country counterparts. From an implementation perspective, the Quality Strategy significantly underperformed its benchmark and was responsible for the lions share of this quarters overall underperformance.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The blended Global Developed Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 3 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
56
Inception: 2/28/94; Benchmark: Blended Benchmark Performance1
Total Return Net of Fees (%)
GMO International All Country Equity Allocation Strategy As of March 31, 2011
Average Annual Total Return (%)
YTD 2011 3.40 3.38 2002 2003 48.86 42.77 2004 24.06 21.11 2005 19.03 16.71
Strategy Composition3
Emerging Markets 27.3%
Benchmark Composition
(MSCI ACWI ex-U.S. Index)
Quarterly Strategy Attribution International All Country Equity Allocation Strategy returned +3.4% for the quarter, even with its benchmark. Asset allocation The detracted 0.4% while implementation added 0.4%. weightings between value and growth exposures in the underlying strategies were essentially neutral, so the outperformance of The value stocks this quarter was mitigated by our position in growth stocks, which underperformed. Our overweight to emerging markets, which underperformed their developed country counterparts, was the main driver of underperformance. From an implementation standpoint, three of the four holdings underperformed their respective benchmarks, but the powerful outperformance of the Emerging Markets Strategy more than compensated for these loses.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The blended International All Country Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI ACWI (All Country World) ex-U.S. Index (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 3 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
57
3.01 3.36
2001
2002
2007
2008
Strategy Composition3
Flexible Equities 3.8% Emerging Markets 3.1%
Benchmark Composition
(MSCI EAFE Index)
Quarterly Strategy Attribution International Developed Equity Allocation Strategy returned +3.0% for the quarter, underperforming its benchmark by 0.4%. The Virtually all of the underperformance came from implementation. weightings between value and growth exposures in the underlying strategies were essentially neutral, so the outperformance of The value stocks this quarter was mitigated by our position in growth stocks, which underperformed. Our minor allocation to emerging equities contributed negatively to performance, albeit modestly. Implementation was a tougher story, as three of the four underlying strategies underperformed their respective benchmarks.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The blended International Developed Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI EAFE (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 3 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
58
YTD 2011 4.07 6.20 2002 2003 29.99 29.69 2004 10.74 11.45 2005 3.68 5.53
Strategy Composition3
Small/Mid Cap Value 1.1% Small/Mid Cap Growth 1.3%
Benchmark Composition
(Russell 3000 Index)
Quality 48.5%
Quarterly Strategy Attribution U.S. Equity Allocation Strategy finished the quarter with a return of +4.1%, underperforming its benchmark by 2.1%. Asset The allocation had a negative effect, but implementation was the main driver of the underperformance. large cap tilt to this portfolio (relative to the Russell 3000 benchmark) detracted from performance as small cap stocks continued The their winning streak versus large caps. In the risk rally of the quarter, any small or mid cap exposure would have been helpful, so our large cap tilt was a drag on performance. Within implementation, the Quality Strategy was the largest detractor as it underperformed its benchmark by over 200 basis points.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The blended U.S. Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, Russell 3000 or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group. 3 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
59
2.78 2.26
2007
2008
Current Exposure4
Energy Futures Natural Gas Gasoline Metals Gold Copper Softs Cocoa Sugar Position Short Long Position Long Long Position Long Long Meats Live Cattle Lean Hogs Grains Soybean Soybean Meal Soybean Oil Corn Wheat Position Long Short Position Long Long Long Long Short
Quarterly Strategy Attribution Alternative Asset Opportunity Strategy returned +2.8% in the first quarter, outperforming its benchmark, the Alternative Asset The Opportunity index (50% Dow Jones-UBS Commodity index/50% J.P. Morgan U.S. 3-Month Cash index), by 0.5%. benchmark returned +2.3% in the first quarter of 2011: the Dow Jones-UBS Commodity index returned +4.4% and cash The returned +0.1%. Commodity prices were mixed during the quarter, rising by as much as 48% (cotton) and falling by as much as 9% (sugar). Silver, RBOB gas, lean hog, and gold contract prices were also among those that rose by 1% to 22% during the quarter, while cocoa contract prices fell, by 1%. performance attribution, the strategy benefited from positions in RBOB gas, silver, and gold contracts, as well as gains derived by In exposure to the collateral pool. While unable fully to offset gains, cotton, cocoa, and lean hog contracts contributed negatively to performance during the quarter.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Alternative Asset Opportunity Index is an internally maintained benchmark computed by GMO, comprised of 50% Dow Jones-UBS Commodity Index and 50% J.P. Morgan 3 Month Cash Index. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
60
-1.42 0.04
Long Exposure3
Position Exposure % 29.1 22.0 21.9 15.1 10.9 2.0 0 10 20 30
Position
Short Exposure3
Exposure % -1.7 -15.4 -25.2 -44.9 -60 -40 -20 0
Quality Int'l. Growth Int'l. Intrinsic Value U.S. Core Cash Equivalents Emerging Markets
Quarterly Strategy Attribution Alpha Only Strategy was down 1.4% for the quarter, underperforming its cash benchmark. The Negative alpha from both the U.S. Core Equity Strategy and the Quality Strategy was the main driver of the underperformance this quarter.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. 3 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 4 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross.
1
61
YTD 2011 2.13 2.88 2003 2004 12.73 10.02 2005 9.91 5.91 2006 12.08 12.95
2.13 2.88
Strategy Composition3
Multi-Strategy 10.1% Tax-Managed Absolute Return 2.1% U.S. Equities 19.0%
Benchmark Composition
(GMO Tax-Managed Global Balanced Index)
Strategy
20% 10% 0% -10% -20% +12.2% +0.3% -6.7% U.S. Equities Int'l. Equities Emerging Markets +3.0%
Quarterly Strategy Attribution Tax-Managed Global Balanced Strategy added 2.1% for the first quarter of 2011, while the blended benchmark added 2.9%. U.S. The equities posted the quarters strongest returns, due solely to being less affected than other regions by rising oil prices, ongoing sovereign debt concerns, and natural disasters. Within the U.S., the largest capitalization stocks lagged smaller capitalization issues. International developed equities outpaced emerging equities. Municipal bonds added 0.6% for the quarter. Within the portfolio, both asset allocation and implementation detracted from relative returns. Within asset allocation, the underweight of U.S. equities and overweight of emerging equities both detracted from relative returns. The portfolios allocation to alternative assets also detracted. Implementations shortfall came from within the U.S equities component of the portfolio, where quality-influenced valuation-based stock selection strategies lagged. Implementation within emerging equities was a positive contributor for the quarter.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Tax-Managed Global Balanced Index is an internally computed benchmark comprised of (i) 60% MSCI ACWI (All Country World Index) (MSCI standard Index Series, net of withholding tax) and (ii) 40% Barclays Capital Muni 7 Year (6-8) Index. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 3 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
62
2.53 0.04
Current Profiles4
Long Short
Sector Exposure4
Sector Net Weight (%) 9.2 5.8 1.0 6.1 12.3 3.6 16.1 4.4 1.5 1.0 -4.8 -20 -10 0 10 20
% Long/Short P/E - Excl Neg Earnings Hist 1 Yr Wtd Med % Negative Earnings
84 % 15.6 x 11.4 %
27 % 18.3 x 2.7 %
Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecom. Services Utilities Unassigned
Quarterly Strategy Attribution Aggressive Long/Short Strategy returned +2.5% in the first quarter of 2011. The Positive returns were generated in each of our major investment categories: Fundamental Value, Volatility, and Merger arbitrage. Additional gains came from our quantitative strategies. current prices, there are not as many opportunities available to us, but we have been able to identify investments that meet our At criteria and will continue to take advantage of fearful markets to add positions when appropriate.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. Exposure information is not normalized and shown as a percent of total net assets. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
63
YTD 2011 -5.82 0.04 2004 2005 -13.24 3.00 2006 -1.65 4.76 2007 17.87 4.74
-5.82 0.04
Current Profiles4
Long Short
Sector Exposure4
Sector Net Weight 39.5 Long Short
P/E - Ex Neg Earn Hist 1 Yr Wtd Med % Negative Earnings Price/Book - Hist 1 Yr Wtd Avg Dividend Yield - Hist 1 Yr Wtd Avg
x % x % % x %
x % x % %
x
%
Regional Weights4
Region
-11.7 Consumer Discretionary Consumer Staples -3.7 Energy -41.2 Financials Health Care -14.2 Industrials Information Technology -12.6 Materials -4.8 Telecom. Services -1.5 Utilities Unassigned -60 -30 0
24.6 19.1
8.6 30 60
2.7 % 40.1 12.5 0.0 35.3 2.3 37.0 0.0 1.0 0.0 8.6
14.4 % 0.6 16.2 41.2 10.7 16.5 17.9 12.6 5.8 1.5 0.0
Quarterly Strategy Attribution Tactical Opportunities Strategy returned -5.8% in the first quarter of 2011. The Positive absolute returns were generated in the high quality long portfolio, but these returns were not enough to offset the performance in the short portfolio. overwhelming impact in the strategy continues to be size: long exposure to mega cap quality stocks market underperformers An continues to be over 90% given their extremely attractive valuations. The short exposure, on the other hand, focuses on expensive non-mega caps. The preponderance of risk-seeking investors favoring mid and small cap stocks continues to push down prices on high quality stocks. From a top-down economic perspective, there is evidence of simultaneous deflation and inflation as of quarter end. Energy and food prices are increasing while home prices have begun another downward trend. How this will ultimately play out is debatable, but one thing is certain: we strongly believe that quality will ultimately win under any reasonable scenario. Despite the confluence of the macro economic factors surrounding us, mega cap quality remains a cheap asset class and one that has continued to retain its economic value. However, the lower prices of quality companies translate into even more attractive valuations. It has been shown that quality companies are able to retain their fundamental performance; a decline in their prices does not make them more risky. It makes them more attractive. From an industrial sector analysis, the largest short position in the strategy Financials generated robust gains this quarter but was offset by significant long bets in Consumer Staples, Health Care, and Information Technology, which all generated losses. portfolios average net exposure for the quarter was neutral. The
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. Exposure information is not normalized and shown as a percent of total net assets. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
64
0.29 0.09
2007
2008
Characteristics4
EMBIG Beta Modified Duration Spread Duration 0.5 2.5 3.2 Yrs.
Regional Weights4
Underweight/Overweight Against Benchmark (%)
10
20
Quarterly Strategy Attribution Emerging Country Debt Long/Short Strategy gained 0.3% in the first quarter of 2011, outperforming its benchmark, the J.P. The Morgan U.S. 3 Month Cash index, by 0.2%. The strategy invests mostly in countries in the J.P. Morgan Emerging Bond Market Index (EMBIG), which returned +1.0% for the quarter. portfolio has a beta of 0.5 to the credit spread risk of the J.P. Morgan EMBIG. Its interest rate duration is low, so the 15-basisThe point rise in U.S. interest rates did not hurt the portfolio. Due to its positive spread duration, the portfolio also did not benefit from the slight rise in spreads for the asset class, from 289 basis points to 299 basis points. strategy targets absolute return by taking long and short positions in the same countries. Large holdings in Argentina, Russia, and The Venezuela contributed to returns, as the wide spreads in those countries narrowed slightly.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The J.P. Morgan U.S. 3 Month Cash Index is an independently maintained and widely published index comprised of three month U.S. dollar Euro-deposits. The duration of the Index is generally 90 days. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
65
1.01 0.09
2007
2008
Performance Attribution4
Net Contribution (%)
Currency Weights4
Net Weight
3.9
53.6
80 120
Quarterly Strategy Attribution the first quarter of 2011, the Currency Hedge Strategy returned +1.0%, compared to its benchmark, the J.P. Morgan U.S. 3 Month In Cash index, which gained 0.1%. Swedish krona led gains, +6.6%, while New Zealand dollar lagged, -2.4%. Central banks in Sweden and New Zealand were the only ones of the G10 to change policy interest rates during the quarter. The Swedes raised theirs by 25 basis points amidst a healthy economic environment, and the New Zealanders cut theirs by 50 basis points, anticipating that the February Christchurch earthquake would add to the uncertain economic environment. Japanese yen fell by 2.1%, pushed lower by coordinated G7 intervention. The yen briefly hit multiple-decade highs as the market The feared repatriation flows would flow after the March 11 earthquake, tsunami, and subsequent nuclear catastrophe. euro gained 5.8%, despite the slow-motion European sovereign debt crisis. In peripheral Europe, CDS spreads widened anew The amidst upwardly-revised fiscal deficit and required banking assistance figures, predictably punctuated by rating agency downgrades. Strong indications that the ECB was likely to raise policy rates in early April widened rate differentials, supporting the currency. Buried in the news cycle were two G20 meetings addressing the global monetary architecture. Despite thoughtfully-titled sessions led by bigname policymakers, nothing conclusive resulted. performance attribution, cross-market strategies were successful, with longs in the Scandinavian currencies adding. Opportunistic In strategies were unsuccessful, however, in particular a long in New Zealand dollars relative to Australian dollars, which suffered the negative impact from the unexpected earthquake and subsequent policy actions.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The J.P. Morgan U.S. 3 Month Cash Index is an independently maintained and widely published index comprised of three month U.S. dollar Euro-deposits. The duration of the Index is generally 90 days. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
66
1.27 0.09
2006
2007
2008
Performance Attribution4
Strategy Net Contribution (%) 0.0 0.2 -0.1 0.0 0.3 0.8 -2 -1 0 1 2
Country Weights4
Net Weight (%)
-1.6 62.4
100
200
GMO 2011
67
4.55 0.09
2007
2008
Quarterly Strategy Attribution the first quarter of 2011, the Emerging Currency Hedge Strategy returned +4.5%, while its benchmark, the J.P. Morgan U.S. 3 In Month Cash index, gained 0.1%. Positive relative performance resulted mainly from currency positioning. Most emerging currencies rose relative to the U.S. dollar during the quarter. Central and Eastern European currencies led, with Hungarian forint +10.9%, Romanian leu +9.1%, and Czech crown +8.1%, bolstered in part by the rise in the euro relative to the dollar. The euro gained 5.8%, despite the slow-motion European sovereign debt crisis. In peripheral Europe, CDS spreads widened anew amidst upwardly-revised fiscal deficit and required banking assistance figures, predictably punctuated by rating agency downgrades. Elsewhere, most currencies shrugged off a seemingly endless barrage of unexpected global events: political turmoil in the Middle East; the earthquake in New Zealand; the earthquake/tsunami/nuclear catastrophe in Japan; and a sudden hawkishness among policymakers at the Federal Reserve and ECB. Buried in the news cycle were two G20 meetings addressing the global monetary architecture. Despite thoughtfully-titled sessions led by big-name policymakers, nothing conclusive resulted. Unsettling political events served as the backdrop for declines in the Egyptian pound and the Peru new sol. Following closely on the heels of the dramatic events in Tunisia, popular uprising led to the departure of Egyptian President Hosni Mubarak. The stock exchange was closed for much of the quarter, and currency trading was extremely limited. By quarter end, a historic referendum was held regarding changes to the constitution, paving the way for parliamentary and presidential elections. Peru, polls revealed an alarming rise in the popularity of leftist candidate Ollanta Humala. With the election approaching on April In 10, market participants, recalling the severe sell-offs associated with the rise of this same candidate in the 2006 elections, sold Peruvian assets. Naturally, liquidity dropped as well. NDF forward points flipped from implying a forward premium for PEN to a forward discount. Chilean peso was another notable laggard, -2.0%. Chile announced a massive fx intervention program, apparently desperate to avoid capital controls, the effectiveness of which has been extensively questioned by Chilean policymakers subsequent to their 1990s experiments with them. Currency positioning was fairly uniformly positive this quarter, as the portfolio had been positioned mostly for strength in emerging currencies. Notable contributions came from long positions in Hungary, Romania, and Russia. Detracting slightly was the short position in Colombia, and the long position in Egypt. By quarter end, the strategy had closed its position in Egypt due to lack of liquidity in the currency.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The J.P. Morgan U.S. 3 Month Cash Index is an independently maintained and widely published index comprised of three month U.S. dollar Euro-deposits. The duration of the Index is generally 90 days. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
68
YTD 2011 1.13 0.04 2003 35.76 1.07 2004 11.42 1.24 2005 6.97 3.00 2006 5.63 4.76
Strategy Benchmark
9.93 1.41
Equity Exposure4
Position Absolute % Quality 15.7 Emerging Equities 5.3 Japanese REIT 4.6 Euro Div. Swaps 4.3 Opportunistic Long Equities 3.9 Opportunistic Japanese Equities 2.2 U.S. Housing -1.2 Australian Banks -3.7 Chinese Equities -3.7 Opportunistic Short Equities -12.0 S&P 500 -20.0 Russell 2000/S&P Midcap -23.0 Junk -60 -30
4
57.0
30
60
Currency Exposure
Position Korean Won Singapore Dollars New Zealand Dollar China Renminbi (Yuan) Japanese Yen Australian Dollars
Other
9.0 5.3
Position JPY Inflation Swap Credit Opportunities Strategy S&P Volatility Currency Volatility -40
Absolute %
GMO 2011
69
YTD 2011 -3.85 0.04 2003 3.79 1.07 2004 1.33 1.24 2005 4.63 3.00 2006 8.39 4.76
10.37 0.13
Net Weight (%) 25.0 16.0 15.0 10.0 10.0 13.0 5.0 5.0 -3.0 -5.0 -9.0 -11.0 -15.0 56.0 -30 0 30 60
Commodity Markets4
Commodity
Currency Selection4
Currency
Net Weight (%) 14.0 6.0 4.0 -24.0 -96.1 -100 -50 0 50 100
Gasoline Soybeans Sugar Coffee Hogs Wheat Cotton Copper Corn Natural Gas Silver Crude Oil Net Commodities
Net Weight (%) 3.6 2.0 0.4 0.4 -1.2 -2.0 -4.0 -4.0 -4.0 -6.8 -7.2 -7.6 -30.4 -40 -20 0 20 40
GMO 2011
70
GMO Multi-Strategy
Inception: 10/31/02; Benchmark: Citigroup 3-Month T-Bill Index Performance1
Total Return Net of Fees (%)
0.03 0.04
Strategy Composition4
Fixed Income Hedge 9.7% Currency Hedge 3.0% Emerging Currency Hedge 4.0% Mean Reversion 15.4%
Completion 15.7%
Quarterly Strategy Attribution Multi-Strategy portfolio was flat for the first quarter, even with its cash benchmark. The Seven of the nine strategies posted positive performance, with Emerging Currency Hedge and Completion Strategy leading the pack. The Aggressive Long/Short Strategy also posted a strong quarter, returning +2.5%. large position in the Tactical Opportunities Strategy, which lost 5.8%, erased these positive results as its anti-risk theme continued to A struggle in the global risk rally.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
71
-0.25 0.04
Current Profiles4
Long Short
Sector Exposure4
Sector Net Weight (%) 16.5 7.3 4.3 -0.8 -1.4 -1.7 -2.9 -3.1 -4.2 -14.2 -20 -10 0 10 20
Equity Exposure P/E - Excl Neg Earnings Hist 1 Yr Wtd Med % Negative Earnings Market Cap - Weighted Median $Bil
Consumer Discretionary Consumer Staples Industrials Health Care Utilities Telecom. Services Materials Energy Information Technology Financials
Quarterly Strategy Attribution Tax-Managed Absolute Return Strategy declined slightly for the first quarter of 2011, finishing the quarter with a loss of 0.3%. The Returns for the long portfolio, which invests in stocks that are attractive based on either valuation, momentum, or a combination of these measures, and the short portfolio, which invests in stocks that are unattractive using these same measures, also advanced by a comparable amount, cancelling each other out by delivering returns close to the 8.5% mark. Despite the similar results, the long portfolio and short portfolio took very different paths. The long portfolio earned the majority of its return from selections concentrated within Energy, Consumer Discretionary, and Health Care stocks. The short portfolios returns came from a broader-based selection of stocks, with selection within Financial Services and Information Technology joining Energy and Health Care stocks as the top sources of positive return.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. Exposure information is not normalized and shown as a percent of total net assets. GIPS compliant presentation is available at www.gmo.com.
1
GMO 2011
72
GMO measures each strategys performance against a specific benchmark or index (each, a Benchmark), although no strategy is managed as an index strategy or index-plus strategy. Actual composition of a strategys portfolio may differ to varying degrees from that of its Benchmark. Indices are not managed and do not pay fees and expenses. One cannot invest directly in an index. In some cases, a strategys Benchmark differs from the broad based index against which performance is shown in the strategys prospectus. GMO may change a strategys benchmark from time to time.
Full Name 3 Month LIBOR Barclays Capital U.S. Aggregate Index Barclays Capital U.S. Treasury Inflation Notes Index Description The 3 Month LIBOR represents the London Inter-Bank Offered Rate for a 3 month deposit in U.S. dollars during a given month. The Barclays Capital U.S. Aggregate Index is an independently maintained and widely published index comprised of U.S. fixed rate debt issues having a maturity of at least one year and rated investment grade or higher. The Barclays Capital U.S. Treasury Inflation Notes Index is an independently maintained and widely published index comprised of Inflation-Protection Securities issued by the U.S. Treasury (TIPS).
Citigroup 3-Month T-Bill Index The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. Citigroup 3-Month T-Bill ++ Index CPI Index CPI Plus 5% Index The Citigroup 3-Month Treasury Bill ++ Index is an internally maintained benchmarked computed by GMO, comprised of 3 Month LIBOR from 5/31/2003 to 8/31/2009, and Citigroup 3-Month Treasury Bill Index thereafter. The CPI (Consumer Price Index) for All Urban Consumers US All Items is published monthly by the U.S. government as an indicator of changes in price levels (or inflation) paid by urban consumers for a representative basket of goods and services. The CPI (Consumer Price Index) Plus 5% Index is an internally maintained (monthly) benchmark based on the CPI Index for All Urban Consumers US All Items which is published monthly by the U.S. government as an indicator of changes in price levels (or inflation) paid by urban consumers for a representative basket of goods and services. The CPI Plus 5% Index is calculated by adding 5% annualized to the return of the CPI Index. The Alternative Asset Opportunity Index is an internally maintained benchmark computed by GMO, comprised of 50% Dow Jones-UBS Commodity Index and 50% J.P. Morgan 3 Month Cash Index. The blended Global All Country Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI ACWI (All Country World Index) (MSCI standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The blended Global Balanced Asset Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, MSCI ACWI (MSCI Standard Index Series, net of withholding tax) and Barclays Capital Aggregate or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The blended Global Developed Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The blended International All Country Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI ACWI (All Country World) ex-U.S. Index (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The blended International Developed Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI EAFE (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The blended Real Return Global Balanced Asset Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World (MSCI Standard Index Series, net of withholding tax), Barclays Capital Aggregate, and Citigroup 3-Month T-Bill or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The Tax-Managed Global Balanced Index is an internally computed benchmark comprised of (i) 60% MSCI ACWI (All Country World Index) (MSCI standard Index Series, net of withholding tax) and (ii) 40% Barclays Capital Muni 7 Year (6-8) Index. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The blended U.S. Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, Russell 3000 or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group.
GMO Alternative Asset Opportunity Index GMO Blended Global All Country Equity Allocation Index
73
The J.P. Morgan EMBI Global (Emerging Markets Bond) Index is an independently maintained and widely published index comprised of debt securities of countries, including Brady bonds, sovereign debt, local debt, and Eurodollar debt, all of which are U.S. dollar denominated. The J.P. Morgan EMBI Global (Emerging Markets Bond) Index + is an internally maintained benchmark computed by GMO, comprised of (i) the J.P. Morgan Emerging Markets Bond Index (EMBI) prior to 8/31/1995, (ii) the J.P. Morgan EMBI+ through 12/31/1999, and (iii) the J.P. Morgan EMBIG thereafter. The J.P. Morgan Global Government Bond Index is an independently maintained and widely published index comprised of government bonds of developed countries with maturities of one year or more.
J.P. Morgan Government Bond The J.P. Morgan Government Bond Index-Emerging Markets GBI-EM Diversified Index is an independently maintained and widely Index-Emerging Markets GBI- published index of global local emerging markets consisting of regularly traded, liquid fixed-rate, domestic currency government bonds. EM Diversified Index J.P. Morgan Non-U.S. Government Bond Index J.P. Morgan Non-U.S. Government Bond Index (hedged) (ex-Japan) + The J.P. Morgan Non-U.S. Government Bond Index is an independently maintained and widely published index comprised of non-U.S. government bonds with maturities of one year or more. The J.P. Morgan Non-U.S. Government Bond Index (Hedged) (ex-Japan) + is an internally maintained benchmark computed by GMO, comprised of (i) the J.P. Morgan Non-U.S. Government Bond Index (Hedged) prior to 12/31/2003 and (ii) the J.P. Morgan Non-U.S. Government Bond Index (Hedged) (ex-Japan) thereafter.
J.P. Morgan U.S. 3 Month Cash The J.P. Morgan U.S. 3 Month Cash Index is an independently maintained and widely published index comprised of three month U.S. Index dollar Euro-deposits. The duration of the Index is generally 90 days. J.P. Morgan U.S. 3 Month Cash The J.P. Morgan U.S. 3 Month Cash + Index is an internally maintained benchmark computed by GMO, comprised of (i) the Barclays + Index Capital U.S. Treasury 1-3 Year Index from 5/31/2006 to 9/29/2006 and (ii.) the J.P. Morgan U.S. 3 Month Cash Index thereafter. MSCI EAFE Growth Index The MSCI EAFE (Europe, Australasia, and Far East) Growth Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks that have a growth style. Large and mid capitalization stocks encompass approximately 85% of each markets free float-adjusted market capitalization. Style is determined using a multi-factor approach based on historical and forward-looking characteristics. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The MSCI EAFE (Europe, Australasia, and Far East) Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The MSCI EAFE (Europe, Australasia, and Far East) Index (Hedged) (net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks currency hedged into U.S. dollars. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The MSCI EAFE (Europe, Australasia, and Far East) Small Cap + Index is an internally maintained benchmark computed by GMO, comprised of (i) the S&P Developed ex-U.S. Small Cap Index through 5/30/2008 and (ii) the MSCI EAFE Small Cap Index (MSCI Standard Index Series, net of withholding tax) thereafter. MSCI data may not be reproduced or used for any other purpose. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The MSCI EAFE (Europe, Australasia, and Far East) Value Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks that have a value style. Large and mid capitalization stocks encompass approximately 85% of each markets free float-adjusted market capitalization. Style is determined using a multi-factor approach based on historical and forward-looking characteristics. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.
MSCI Emerging Markets Index The MSCI Emerging Markets Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global emerging markets large and mid capitalization stocks. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. MSCI Japan IMI ++ Index The MSCI Japan IMI (Investable Market Index Series) ++ Index is comprised of (i) the MSCI Japan (MSCI Standard Index Series, net of withholding tax) from 12/31/2005 to 6/30/2008 and (ii) the MSCI Japan IMI (MSCI Standard Index Series, net of withholding tax) thereafter. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The MSCI U.S. REIT Index is an independently maintained and widely published index comprised of equity securities issued by REITs. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The MSCI World Growth Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global developed markets large and mid capitalization stocks that have a growth style. Large and mid capitalization stocks encompass approximately 85% of each markets free float-adjusted market capitalization. Style is determined using a multi-factor approach based on historical and forward-looking characteristics. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The MSCI World Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global developed markets. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The Russell 1000 Growth Index is an independently maintained and widely published index comprised of the stocks included in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group. The Russell 1000 Value Index is an independently maintained and widely published index comprised of the stocks included in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group.
74
Full Name Russell 2500 Growth Index Description
The Russell 2500 Growth Index is an independently maintained and widely published index comprised of the stocks included in the Russell 2500 Index with higher price-to-book ratios and higher forecasted growth values. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group. The Russell 2500 Value + Index is an internally maintained benchmark computed by GMO, comprised of (i) the Russell 2500 Index from 12/31/1991 to 12/31/1996 and (ii) the Russell 2500 Value Index thereafter. The Russell 2500 Value and Russell 2500 Indices are a trademark/service mark of the Frank Russell Company. Russell is a trademark of the Frank Russell Company. The Russell 3000 + Index is an internally maintained benchmark computed by GMO, comprised of (i) the S&P 500 Index through 10/15/2007 and (ii) the Russell 3000 Index thereafter. The Russell 3000 Index is a trademark/service mark of the Frank Russell Company. Russell is a trademark of the Frank Russell Company. The S&P 500 Index is an independently maintained and widely published index comprised of U.S. large capitalization stocks. The S&P Developed ex-U.S. Small Cap Index is an independently maintained and widely published index comprised of the small capitalization stock component of the S&P Broad Market Index (BMI). The BMI includes listed shares of companies from developed and emerging countries with a total available market capitalization (float) of at least the local equivalent of $100 million USD. The S&P Developed ex-U. S. Small Cap Index represents the bottom 15% of available market capitalization (float) of the BMI in each country. The S&P/IFCI Composite Index is an independently maintained and widely published index comprised of emerging markets stocks.
GMO
40 Rowes Wharf Boston, Massachusetts 02110 (617) 330-7500 Visit our website at www.gmo.com