GMO forecasts - high quality

[mhdousa]

GMO just released their most recent set of 7-year forecasts.  Interestingly, U.S. High Quality is down to a 4.7% forecasted annual return.  Looking back at a set of forecasts from 6/30/09 (attached, which I hope is okay with Sanj as this doesn't seem to be available anywhere else anymore), U.S. High Quality was forecasted to return 12.3% a year. 

However, GQETX, which is GMO's implementation of their "high quality" strategy, has only returned about 15% during this time frame, which would be right in line with a 12% annualized return.

As far as I understand, their forecasts are based on mean reversion without regards to macro considerations, so I'm trying to figure out what would make the forecast change so much over the last year or so.

 

Any insights would be much appreciated.

 

-M

[vinod1]

Good catch.

 

I looked at S&P 500 and Small Cap indices and they are up roughly 29% and 42% over this period. So the 7 year forecast change for these two tally out quite well over this period with the market moves. Quality on the other hand seems to have moved from a 6.1% annual premium over S&P 500 to a 3.5% premium while providing nearly identical returns over this period. Very strange.

 

Vinod