Why Systematic Investing Needs More Than Factor Models

GMO's The Evolution and Edge of Systematic Equity explains how its quantitative investment process combines fundamental analysis with systematic research to identify market mispricing beyond traditional factor investing.

• Rather than relying on standard valuation metrics, GMO adjusts company accounts to estimate economic book value, arguing reported financial statements often understate the value of intangible assets and long-term investments.

• The firm's investment process combines bottom-up company analysis with top-down country and industry research, giving every portfolio position an explicit investment thesis instead of a purely statistical signal.

• Current research focuses on improving portfolio resilience through lifecycle modelling, transaction-cost analysis, uncertainty optimisation and the integration of generative AI into its research framework.

Read the full paper for a detailed explanation of how GMO combines fundamental investing with systematic portfolio construction.