We are all familiar with the main equity market storylines of 2023:

• The recession widely anticipated by Wall Street and Main Street never materialized
• Better-than-expected economic growth resulted in robust gains across equity markets
• A select group of mega-cap growth stocks benefited from excitement around artificial intelligence (AI)

No segment of the market captured more attention than the Magnificent Seven: Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia and Tesla.

These companies collectively accounted for 20% of the S&P 500’s weight at the beginning of 2023 (increasing to 28% by year-end) and drove approximately half of the Index’s 26% return.

Almost any investment strategy that wasn’t over-weight in this handful of names struggled to outperform.

2023 Cumulative Returns

The market leadership was a 180-degree reversal from 2022, when companies that did not pay dividends experienced a decline of nearly 39%, significantly greater than the 18% drop in the overall S&P 500.

Conversely, companies with the highest dividend yields delivered a strong performance in 2022, with positive returns exceeding 12%.

The WisdomTree U.S. Quality Dividend Growth Fund (DGRW) strategically selects dividend-paying companies based on their high profitability and growth characteristics. In 2022, DGRW outperformed the S&P 500 by more than 11%, primarily due to its under-weight exposure to non-dividend-paying tech companies.

In 2023, the Fund lagged the S&P 500 by 7.6%. This underperformance was largely driven by its collective under-weight in the Magnificent Seven (averaging 10.5% under-weight), accounting for 5% of total underperformance (or nearly 70% of the total underperformance).

Over the full period, DGRW maintained an edge over the S&P 500 of more than 700 basis points cumulatively.

For the most recent month-end and standardized performances and to download the Fund prospectus, click here.

For definitions of terms in the charts above, please visit the glossary.

Though mega-cap growth garnered the most attention last year, investors should be reminded that each style index was up well over 10%.

Style Box Performance

Conclusion

Through the choppiness of the last several years, DGRW outperformed the S&P 500 by more than 1.4% annualized. It has been a smoother ride through all the volatility when you zoom out.

Often, investors think a dividend fund requires value leadership for outperformance—this outperformance came amid a backdrop of a directionless market for value versus growth, justifying an allocation for DGRW at the core of an investor’s portfolio.

Annualized Three-Year Return