Quality Is Quality

The WisdomTree US Quality Dividend Growth Fund (DGRW) is a large cap growth equity that focuses on dividend-paying stocks with strong fundamental growth characteristics. Momentum ETFs have been all the rage of late, largely because they tend to have ceilings and chasing momentum has extra appeal during uncertain times.  

During periods of recovery, momentum-focused funds lag behind funds that focus on the fundamentals: healthy balance sheets, growth prospects, and consistent improvements in their earnings. In other words, quality. Despite looming uncertainty around the delta variant and future lockdowns, a promising U.S. jobs report last Friday could give the economy a boost and continue to push recovery along.  

According to WisdomTree analyst Matt Wagner: “From a risk perspective, quality companies have had lower down capture than the market and lower downside deviation. These are characteristics that loss-averse investors should prefer, and thus efficient markets would compensate with below-market returns. The anomaly of higher-quality stocks, measured here by operating profitability, outperforming lower-quality stocks by 400 bps annualized looks like a case of ‘a free lunch.’”

DGRW is a quality-focused ETF that tracks the WisdomTree Dividend Index, which is comprised of 300 companies that are measured by their long-term growth expectations and three-year historic returns. DGRW is weighted annually to reflect the proportionate share of the aggregate cash dividends each component company is projected to pay out. 

The fund’s dividend yield is 1.85%, putting it in the top 15 of 190 peers. That’s coupled with a friendly P/E ratio of 22.23, a reasonable 0.28 expense ratio, and $6,353.4 M worth of holdings spread over 299 companies. 

The top holdings are all recognizable names. Microsoft (MSFT) is the current top holding at 5.47%. Apple (AAPL) and Johnson & Johnson (JNJ) are at 4.87% and 4.52% respectively. Other holdings include Procter & Gamble (PG), Pfizer (PFE), and Coca-Cola (KO). These are solid companies that deliver reliable dividends year after year.  

According to Blackrock’s Gargi Chaudhuri, “while investments that benefit from broad-based growth, such as cyclical and value sectors, still have room to run, we think it is time to add quality stocks to the portfolio – or those companies that will benefit once peak growth has passed.”

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