By Jeff Weniger, CFA
Head of Equity Strategy
DGRW is our equity flagship and it just hit its 10th birthday last month. A large asset base on this one, $8.8 billion, calls for a review of some of the WisdomTree U.S. Quality Dividend Growth Fund’s achievements.
For starters, DGRW ranks 7th, 7th, 14th and 7th against its large-cap blend peers on the 1-, 3-, 5- and 10-year performance numbers, respectively, according to Morningstar. It also beat the S&P 500 in the 10+ years since we launched it on May 22, 2013. That is compelling because the Fund plays in dividends, which wasn’t exactly the hot place to be in the last 10 years. Because of the performance numbers and the lengthy track record, Morningstar rates DGRW a 5-star fund and also a “Gold” Medalist, which is the highest that can be achieved.
A chunk of that comes from DGRW’s up capture/down capture dynamics. Hand-in-hand with its beta of 0.91, DGRW is the kind of strategy that hasn’t typically captured all of the upside in the bull runs, but it often doesn’t get hit as hard during the tough times. As of April 30, 2023, the most recent month-end data on these metrics in our PATH tools suite, it had 95% up capture and 93% down capture against the benchmark S&P 500 since the 2013 launch.
Maybe DGRW’s biggest claim to fame, at least in my view and from what I hear when speaking with investors, is the 2022 experience. It’s Morningstar category declined 17.0% last year, while the Index they use to benchmark the strategy, the Morningstar US LM TR Index, was down 19.5%. The S&P was between those two, falling 18.1%. In contrast, DGRW was a portfolio ballast, declining just 6.3% (or 6.4% on NAV).
The Lipper scores are a bright spot for DGRW too. On a 1–5 scale, where 1 is the worst and 5 is the best, DGRW scores a 5 on every single Lipper Leaders measure. Those measures are Total Return, Consistent Return, Preservation Return, Expense and Tax Efficiency.
Fundamentally, it has a design that enabled it to achieve success despite the market loving non-dividend payers all these years. Also, because of its explicit profitability screens, the strategy has a higher return on equity (ROE) than the S&P 500. Additionally, the strategy has a lower forward P/E. Though that is all well and good, you would think DGRW would have had a tough decade given it never had a penny in Alphabet, Amazon, Meta, Tesla, Salesforce or many other non-payers. But things worked out anyway.
The S&P 500’s price return since 1957 is 7.37%. Tack on another 3% or so from dividends and the total return is 10.57%. But over DGRW’s life through May, dividends weren’t exactly the place to be. Since the Fund’s inception, the S&P 500’s highest-yielding dividend quintile has returned “only” 9.6% per year, a far cry from the 15% return of the S&P’s many zero yielders, which include the aforementioned Tech companies. The market itself returned 12.1%.
If dividends weren’t working, how the heck did DGRW come through with a win against the S&P? Because dividends were “off,” but quality was not. The top quintile of S&P stocks by ROE posted a 15.3% gain over DGRW’s life. We owned a bunch of those. We see this all the time in our strategies—value is off while quality is on, or value is on while quality is off; the two factors have a little give and take with each other. That was the situation in 2022, too—quality was dead in the water last year, but the market was grabbing dividend payers. DGRW ended up holding steady with that 6.4% loss, which was a huge moral victory in that grizzly bear situation.
Thanks for a great first 10 years with DGRW. Best wishes for the next 10.
Originally published by WisdomTree on June 22, 2023.
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Important Disclosures and Risks Related to This Article
Unless otherwise stated, all data is as of June 8, 2023.
All Morningstar references are as of June 7, 2023. Fundamental measures are as of April 30, 2023.
Click here for a full list of Fund holdings. Holdings are subject to change.
Morningstar percentile rankings are based on a fund’s average annual total return relative to all funds in the same Morningstar category, which includes both mutual funds and ETFs and does not include the effect of sales charges. Fund performance used within the ranking reflects certain fee waivers, without which returns and Morningstar rankings would have been lower. The highest (or most favorable) percentile rank is 1, and the lowest (or least favorable) percentile rank is 100. Past performance does not guarantee future results.
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