10 Years of DGRW

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.

Category: Large Blend. 1 year percentile rank based on 1,421 funds in category, 3 year percentile rank based on 1,281 funds in category, 5 year percentile rank based on 1,178 funds in category, 10 year percentile rank based on 874 funds in category. As of 5/31/23.

The Morningstar Rating™ for funds, or “star rating,” is calculated for managed products with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance.

The top 10% of products in each product category receive five stars, the next 22.5% receive four stars, the next 35% receive three stars, the next 22.5% receive two stars, and the bottom 10% receive one star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three- and five-year Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns.

The returns themselves are a high point, but much of what I have been focusing on with DGRW lately is the risk; its average annualized volatility has been lower than the S&P 500 over the years too.

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 performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the most recent month-end performance and standardized performance, please click here.

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.