ended February 28,
2023, the Fund’s portfolio turnover rate (including the accounts of the Fund’s wholly-owned subsidiary, GMO Alternative Asset SPC Ltd., and
excluding short-term investments) was 69% of the average value of its portfolio
securities.
Principal investment strategies
The Fund seeks long-term total return by taking long and short positions in a range of
global equity, bond, currency, and commodity markets using exchange-traded and over-the-counter (OTC) futures, forward currency contracts, swaps, and index options.
The Fund also may make direct investments, including in equities and bonds. In constructing the Fund’s portfolio, GMO seeks to take advantage of its proprietary investment models for systematic global tactical asset allocation and market selection. GMO does not maintain a specific interest rate duration for the Fund’s portfolio, and the Fund’s performance is expected to have a low correlation with the performance of major asset classes over a complete market cycle.
Fund assets not invested in equities or held as margin for futures, forward transactions or swaps are typically invested in cash or cash-like investments. Such investments include U.S. and non-U.S. government bonds, Treasury floating rate notes, Treasury Separately Traded Registered Interest and Principal Securities (“STRIPS”), Federal Home Loan Bank discount notes, and other agency notes, money market funds unaffiliated with GMO, shares of U.S. Treasury Fund, and the types of investments typically held by money market funds. The Fund also may invest in U.S. and non-U.S. fixed income securities of any credit quality (including below investment grade securities (commonly referred to as “high yield” or “junk bonds”)), maturity or duration.
The systematic investment process GMO uses in constructing the Fund’s portfolio is
based on the following strategies:
•
Value-Based Strategies. Value factors compare the price of an asset class or market to
the value of a company’s assets less its liabilities. Generally, value strategies include yield analysis and mean reversion analysis.
•
Sentiment-Based Strategies. Generally, sentiment-based strategies assess factors such
as risk aversion, analyst behavior, and momentum.
In implementing the Fund’s investment strategy, GMO seeks to take risk positions for
the Fund that, in GMO’s view, are proportionate to return opportunities. As a result, during periods when GMO believes return opportunities are high relative to the
risks involved, the Fund typically will be exposed to more risks than it would be during periods when GMO believes return opportunities are low relative to the risks involved.
GMO may at any time discontinue strategies, add new strategies, or cause the Fund to take positions that deviate from GMO’s investment models as a result of additional research, changing market conditions, or other factors. The factors GMO considers and investment methods GMO uses can change over time.
The Fund gains exposure to commodities and some other asset classes by investing through a wholly-owned subsidiary advised by GMO, which does not receive any management or other fees for its services to the subsidiary. The subsidiary invests primarily in commodity-related derivatives (such as futures contracts on commodities and commodity indices and over-the-counter swaps on commodity indices) and fixed income investments but also may invest in any other investment in which the Fund is permitted to invest directly. References in this Prospectus to actions taken by the Fund refer to actions taken by the subsidiary as well as the Fund. The Fund does not invest directly in commodities and commodity-related derivatives.
The Fund is not limited in its use of derivatives or in the total notional value of its derivative positions. As a result of its derivative positions, the Fund typically has gross investment exposures in excess of its net assets (i.e., the Fund typically is leveraged) and therefore is subject to higher risk of loss than it would be in the absence of such leverage. The Fund’s performance can depend substantially on the performance of assets or indices underlying its derivatives even though it does not own those assets or indices. In addition, the Fund may lend its portfolio securities.
Principal risks of investing in the Fund
The value of the Fund’s shares changes with the value of the Fund’s investments. Many factors can affect this value, and you may lose money by investing in the Fund. An investment in the Fund is subject to different risks, and higher overall risk, than an investment in
the components of the Fund’s benchmark. References to investments include those held directly by the Fund and indirectly through the Fund’s investments in its
wholly-owned subsidiary and in underlying funds. The principal risks of investing in the Fund are summarized below. For a more complete discussion of these risks,
including those risks to which the Fund is exposed as a result of its investments in its wholly-owned subsidiary and in underlying funds, see “Additional
Information about the Funds’ Investment Strategies, Risks, and Expenses” and “Description of Principal Risks.”
•
Management and Operational Risk – The Fund runs the risk that GMO’s investment techniques will fail to produce intended
results.GMO uses quantitative models as part of its investment process. GMO’s models
may not accurately predict future market movements. In addition, GMO’s models rely on assumptions and data that are subject to limitations (e.g., inaccuracies,
staleness) that could adversely affect their predictive value.The Fund also runs the risk
that GMO’s assessment of an investment (including a security’s fundamental fair (or intrinsic) value) is wrong or that deficiencies in GMO’s or another
service provider’s internal systems or controls will cause losses for the Fund or impair Fund operations.