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The Power of a Rules-Based Strategy in Uncertain Markets

sailboat sailing over the sea

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) demonstrated 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.

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.

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. DGR.B offers exposure to high-quality U.S. dividend growers at a reasonable price compared to traditional quality and broad market benchmarks.

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 ETF1 (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

About the Author

Jaron Liu


Jaron Liu, CFA

Director, ETF Strategy
CI Global Asset Management

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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