March 05, 2025
The Power of a Rules-Based Strategy in Uncertain Markets
CI ETF Pulse
The last week of January saw significant volatility in the markets as the AI rally experienced a shock with the announcement of a competing AI program from China called DeepSeek. NVIDIA, a key driver of the AI boom, lost nearly $600B in market capitalization in a one-day selloff on January 27. This, along with declines in other AI linked companies, weighed heavily on broad benchmarks like the S&P 500, where NVIDIA was its largest holding (6.8% as of January 24). Despite these challenges, CI U.S. Quality Dividend Growth Index ETF1 (DGR.B) delivered a positive return for the day, while the S&P 500 closed down over 1%, resulting in 1.16% of excess return for DGR.B. For the month of January, DGR.B finished with 4.1%, while the S&P 500 returned 3.5%, leading to DGR.B outperforming the index by 0.6%. This outperformance highlights DGR.B’s resilience and strength in a volatile market environment.
Below are several reasons why CI’s U.S. Quality Dividend Growth strategy provides a better approach to core investing:
1. Weighting matters
NVIDIA’s sharp one-day decline highlights one of the inherent flaws with traditional market-cap-weighted indexes – that is, stock price is not always the best estimate of a company’s value, as seen with NVIDIA’s 17% one-day crash. Furthermore, losses are amplified by the large market cap of the company. In comparison, DGR.B takes a different approach as it fundamentally weights companies by dividends. DGR.B is unique in that it holds mature dividend-paying tech companies and weights them based on their dividend stream. As a result, DGR.B only holds five of the MAG7 stocks (excluding Amazon and Tesla), with a 3.8% weight in NVIDIA compared to the 6.8% weight in the S&P 500. This, overall, contributed to DGR.B’s YTD outperformance, further underscoring the benefits of a dividend-weighted approach.
| MAG 7 Holdings | DGR.B | S&P 500 | Return (Jan 27, 2025) |
|---|---|---|---|
| NVIDIA | 3.8% | 6.8% | -16.97 |
| Microsoft | 8.3% | 6.4% | -2.14 |
| Apple | 4.6% | 6.5% | 3.18 |
| Alphabet | 3.5% | 4.1% | -4.20 |
| Meta | 1.5% | 2.7% | 1.91 |
| Amazon | 0.0% | 4.2% | 0.24 |
| Tesla | 0.0% | 2.2% | -2.32 |
Source: Morningstar Direct. Holdings as at January 24, 2025, and performance as at January 27, 2025. Performance in base currency.
YTD RETURN - DGR.B VS. S&P 500
Source: Morningstar Direct. Performance from January 1, 2025 to January 27, 2025. Performance in CAD.
2. Winning by not losing
Investors often focus solely on the upside of markets; however, as part of the natural market cycle, drawdowns can and do occur over the long term. An effective core strategy should be one that is resilient even during periods of market stress. DGR.B provides exposure to high-quality U.S. dividend growers that tend to hold up better in the face of heightened volatility. As shown below, DGR.B has consistently outperformed the S&P 500 during historical drawdown periods since the inception of the fund.
PERIODS OF MARKET DECLINE
Source: Morningstar Direct. Performance in CAD.
3. Quality at a discount
High-quality stocks can often be expensive, as investors are willing to pay a premium for businesses that demonstrate solid profitability, earnings growth, and low leverage. Compared to both the MSCI USA Quality Index and the S&P 500, DGR.B trades at a discount of 17.9% and 8.3%, respectively. This means investors can get exposure to high-quality U.S. dividend growers at a reasonable price through DGR.B.
FORWARD P/E
Source: Morningstar Direct, as at January 31, 2025.
| Name | Ticker | Morning Star Rating | Mgmt Fee (%) | 1M | 3M | 6M | YTD | 1Y | 3Y | 5Y | S.I. |
|---|---|---|---|---|---|---|---|---|---|---|---|
| CI U.S. Quality Dividend Growth Index ETF1 | DGR.B | ★ ★ ★ ★ ★ | 0.35 | 4.1 | 6.3 | 10.6 | 4.1 | 28.2 | 16.1 | 16.5 | 15.3 |
Source: Morningstar Direct, as at January 31, 2025. Performance in CAD.
Inception date: July 12, 2016.
2024 proved to be a stellar year for growth-led U.S. equity markets. As we look ahead, there remains elevated uncertainty and concentration risk in the markets. The CI U.S. Quality Dividend Growth Index Fund1 (DGR.B | DGR | DGR.U) is a low-cost, rules-based strategy that provides an effective way to navigate the U.S. equity market by investing in high-quality dividend-paying companies with a focus on quality and growth. In addition, the fund received a 2024 FundGrade A+ Award for its category (U.S. Dividend & Income Equity) in recognition of its outstanding risk-adjusted performance.
MATERIALS:
1Formerly CI WisdomTree U.S. Quality Dividend Growth Index ETF
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About the Author
Jaron Liu is a Director of ETF Strategy at CI GAM and is responsible for growing the ETF business by setting and executing the ETF sales strategy as well as supporting the ETF sales team. Prior to joining CI GAM, Jaron worked as an analyst within product management for one of the largest global asset managers where he focused on ETFs. Jaron graduated from the University of Waterloo with a degree in Honours Economics and is a CFA charter holder.
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Published March 5, 2025.
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