Gmo the evolution and edge of gmo systematic equity 8 26

THE EVOLUTION AND EDGE OF GMO EQUITY INSIGHTS

Related GMO Investment Solutions SYSTEMATIC EQUITY ■ Emerging Markets Equity Strategy

■ Emerging Markets ex-China Fundamental investing at systematic scale Systematic Equity Team | August 2026 ■ International Equity Strategy

■ U.S. Equity Strategy Many quantitative managers can describe a model; fewer can explain why it should keep ■ U.S. Small Cap Value working. At GMO, the answer begins with a cornerstone conviction: markets misprice ■ World Market Neutral Strategy businesses, but ultimately, economic reality prevails. For nearly 50 years, our research and portfolio construction have been built around that conviction. We started by capturing Jeremy Grantham’s valuation discipline with quantitative tools and have continued applying fundamental analysis at scale with research across multiple alpha dimensions.

“Markets misprice businesses, We systematize fundamental investment judgments: the value of a business, how expectations are shifting, where asymmetric risks are hidden, and how country and industry forces are impacting companies. Every position traces back to a specific research insight. We call this a glass-box process: every position has an explicit investment thesis, not just a signal weight. but ultimately, economic A different starting point reality prevails. Systematic equity investing has converged around a familiar toolkit: value, momentum, quality, risk controls, and an optimizer. Our starting point is different; we focus on economic reality by restating fundamentals where accounting obscures value, building intrinsic-value models rather than relying on ratios, and continuously assessing how expectations are changing.

That starting point matters because investing through many market cycles has taught us where systematic processes tend to break down: generic factor exposures, fragile backtests, crowded risks, and false precision in portfolio construction. Our research exists to address each of those failure modes directly and to stay ahead of those that markets have yet to reveal.

Where the edge shows up Our research engine drives both the bottom-up and top-down perspectives in our process, with proprietary models that identify mispricing at each level. Those insights are then expressed through stock selection and through country, industry, and network tilts.

EXHIBIT 1: ONE RESEARCH ENGINE, TWO PERSPECTIVES Research perspective What it models Portfolio expression Bottom-up Company-level intrinsic value, Stock selection and position quality, sentiment, momentum, sizing and red flags to identify suspicious corporate behavior

Top-down Country, industry, and network- Country tilts, industry tilts, and level return opportunities network-aware positioning

GMO EQUITY INSIGHTS The Evolution and Edge of GMO Systematic Equity | p2

Combining these perspectives produces an explicit thesis for every position and a broader set of independent decisions than a process that ignores top-down information. Breadth, in our framework, is not simply about holding more stocks — it comes from modeling genuinely distinct sources of return.

What this looks like in practice Accounting conventions can significantly distort the picture of a company's true economic position, particularly the treatment of intangibles, R&D, advertising, and net issuance. While we tend to see the largest adjustments in industries with valuable brands and intellectual property, like Household Products and Pharmaceuticals, each company is unique. A consumer goods company that has built its brand through advertising may show a modest book value relative to peers that have grown through acquisition, because organic brand investment is expensed rather than capitalized. A technology company that has grown through stock-based compensation may look cheaper than it is, because dilution is not reflected in standard valuation ratios.

We adjust for these distortions to build what we call GMO Economic Book Value — a restated view of each company's assets that more faithfully represents its economic reality. This is not a cosmetic adjustment. For the Swiss pharmaceutical company Novartis, the difference between the stated book value of…