We think 2025 can be different, and it's important to see what different dividend-oriented strategies are telling us.

• WisdomTree U.S. Quality Dividend Growth Fund (DGRW): DGRW is designed to track the total return performance, before fees and expenses, of the WisdomTree U.S. Quality Dividend Growth Index. This strategy focuses on dividend payers that have indicated strong earnings growth and quality characteristics, which lead to the potential for future dividend growth.
• WisdomTree U.S. Quality Growth Fund (QGRW): QGRW is designed to track the total return performance, before fees and expenses, of the WisdomTree U.S. Quality Growth Index. This strategy focuses on large companies that have indicated strong earnings growth and quality characteristics, regardless of whether they pay dividends.
• WisdomTree U.S. High Dividend Fund (DHS): DHS is designed to track the total return performance, before fees and expenses, of the WisdomTree U.S. High Dividend Index. This strategy focuses on relatively higher-yielding dividend payers, and it does not focus on quality measures of earnings growth measures.
• WisdomTree U.S. Value Fund (WTV): WTV seeks income and capital appreciation by investing primarily in U.S. equity securities that provide a high total shareholder yield with favorable relative quality characteristics.

We can pose a few questions to better understand the spectrum on which these different tools fall within the broader investment toolkit:

Which strategy has the potential to be well-positioned for a continuation of what we saw in 2023 and 2024?

If one's thesis is continued leadership of the Magnificent 7 driving the U.S. equity market forward, QGRW has the strongest exposure to these stocks. DGRW also includes many of them, but the dividend requirement does preclude it from including Amazon or Tesla. It's also the case that DGRW's dividend weighting doesn't include these companies in as large an exposure as QGRW's market cap-weighting approach.

Which strategy has the potential to be well-positioned for a volatile, possibly downward-trending, market correction?

If one is thinking about playing defense rather than offense in U.S. equity markets, DHS is a strategy that could make sense. Higher-yielding dividend payers tend to be in sectors like Utilities or Consumer Staples that have a more defensive, slower growth orientation. We'd note that DGRW's orientation of only including dividend payers is also helpful in a more negative equity market. WTV is also interesting in this context, as its strategy finds companies doing significant share buybacks. We shall see that, like DHS, it has very inexpensive valuation metrics, but it is not confined solely to higher-yielding dividend payers.

Which strategy has the best potential to allow investors to weather different market environments without needing to have a specific view?

We recognize that all investors are different—some are thinking week-by-week, and some are thinking about the next 10 years. DGRW's approach, which includes dividend-paying companies weighted by dividends but also ensures those companies have strong growth and quality characteristics, places it in the middle of the road in many aspects. The dividend weighting, for example, tends to help mitigate the risk that the strategy's valuation metrics rise dramatically relative to the market. Similarly, the focus on earnings growth and quality characteristics tends to generate more exposure to growth-oriented companies that are still paying dividends—like Apple and Microsoft, which are some of the biggest payers of cash dividends in the world.

DHS was running into the wind during the Magnificent 7's run in 2023 and 2024.

QGRW has been strong—but big exposure across the Magnificent 7 may not be ideal if the market becomes more defensively oriented. In some discussions, we have seen investors thinking about pairing QGRW, with its focus on larger, higher-growth companies, with WTV, and its focus on much lower valuations.

Figure 1: Standardized Performance

As we see in figure 2, 2024 was another year of growth leadership, and QGRW was ideally positioned. Placing large weights in fundamentally sound, strongly growing companies was a road to very strong performance. It was also the case that focusing solely on dividend payers was not the route to the strongest performance in 2024.

Figure 2: 2024 Was Another Year of Growth Leadership

After two years of strong performance, there is a mental trap that many investors may fall into—an assumption that the same large companies that have led the way will simply always lead the way. The start of 2025 is a good reminder that there is no one strategy that delivers the strongest performance all of the time.

DGRW, at least during the first two weeks of 2025, has provided some downside risk mitigation, outperforming QGRW by about 90 basis points.

WTV, again over this short period, has provided a slight positive return.

Figure 3: A Rougher Equity Market to Start 2025

DHS, as we see in figure 4, has a much higher dividend yield than DGRW, QGRW and the S&P 500 Index. DGRW also has a dividend yield above that of the S&P 500 Index. It's important that investors understand this as they set their expectations and think about which funds might be better positioned for the environment they are preparing for.

In U.S. equities, companies can return money to shareholders by paying dividends or conducting share buybacks. While DHS emphasizes the dividend side of this approach, WTV emphasizes share buybacks. Here, we show the share reduction yield to account for how some companies may be doing big share buybacks but also, at the same time, large share issuances. Share reduction yield nets these two sides out such that there is an emphasis on capturing the impact of buybacks that are reducing a company's shares outstanding.

Figure 4: Quantifying the Dividend Yield, Share Reduction Yield and Total Shareholder Yield

Valuation can be tricky in that while we cannot ever say it is "unimportant," at the same time, it is not moving markets on a day-to-day basis. The S&P 500 Index has an estimated P/E ratio of around 22 times expected earnings—which is not particularly high relative to history but also not particularly low.

DHS, with its estimated P/E ratio of 13.4x, is a clear outlier in the inexpensive direction, along with WTV and its estimated P/E ratio of 13.1x.

QGRW, with its estimated P/E ratio of 32.6x, is a clear outlier in the other direction.

We would simply remind investors that, for the last two years, many investors have focused on growth and future growth potential. Nvidia has been the ideal that all other companies seeking to do this can follow. That focus on growth and rewarding growth is the "why" as to "why is QGRW's estimated P/E ratio so much higher than the others?" If history is any guide, at a certain point, the expectations of future growth start to disappoint investors, and valuations drift back down to more attractive levels.

Unfortunately, valuation has historically been a terrible "timing" indicator, and we recognize that certain policies and announcements—for example, about taxation—could cause QGRW to have another banner year and push this valuation even higher.

The contrast between WTV and QGRW, visible in figure 5, is another piece of the rationale for why some investors are thinking about both of the strategies in combination.

Figure 5: Valuation, the Estimated P/E Ratio

In figure 6, the sector picture further supports the positioning of the different strategies on our aforementioned spectrum.

• QGRW places double-digit percentage exposures in Information Technology, Consumer Discretionary and Communication Services. Information Technology is around 50%.
• DHS has very low weight in sectors where QGRW has very high weight—it's clearly doing something very, very different exposure-wise.
• It's interesting that WTV is able to achieve a very low valuation without being as extreme in its sector allocations as DHS is.
• DGRW is much more balanced than these other two, sector-wise.

Figure 6: The Sector Picture

Conclusion—Not "If" but "When" Change Is Coming

As 2025 unfolds, the investment landscape may challenge many assumptions forged during the dominance of the "Magnificent 7." Navigating this evolving environment requires thoughtful strategy selection, and the spectrum of approaches—from the income-oriented resilience of DHS and the value-driven focus of WTV to the balanced growth and quality emphasis of DGRW and the offensive, growth-oriented potential of QGRW—offers investors tools tailored to different outlooks and risk tolerances. DHS provides the most defensive positioning for those seeking stability, while WTV, with its low valuation focus, introduces a contrarian element, appealing to those who see opportunity in cyclical rebounds or undervalued segments of the market. Meanwhile, DGRW and QGRW span the middle and growth extremes, with the latter leaning into the momentum of continued mega-cap strength. Together, these strategies illustrate the power of diversification and adaptability, empowering investors to align their portfolios with their views on what comes next. Because, if one truth endures in equity markets, it's that change is not a question of if—but when.