Value’s Extreme Discount Keeps Equity Dislocation Conviction High

GMO’s 2025 year-end letter argues that the valuation gap between value and growth remains near historic extremes, sustaining the opportunity set for its market-neutral Equity Dislocation strategy 

• The strategy returned 15.8% gross (13.4% net) in 2025 and 69.3% gross since inception, despite no meaningful narrowing in value/growth spreads.

• U.S. value sits near the 4th percentile of relative valuation; value would need to outperform growth by ~70% in the U.S. (50% globally) to revert to median levels.

• Negative beta characteristics (-0.18 vs MSCI ACWI) and strong short alpha—particularly in speculative tech—reinforce diversification appeal.

Is speculative excess the catalyst—or merely the fuel—for eventual mean reversion? The full letter details positioning.