An Evolved Approach to Core Investing

The Greek philosopher, Heraclitus, was quoted as saying, “change is the only constant in life”. Henri Bergson took it a step further when he said, “to exist is to change, to change is to mature, to mature is to go on creating oneself endlessly.” These two observations regarding change and the ability to adapt to it, are easily seen in the investing arena. The investment industry is continuously evolving in response to changing macro conditions, new products and regulatory environments. One of the biggest benefactors of change has been the world of indexing and exchange traded funds (ETFs). 

A Little History

In 1889 Charles Dow and his partner, Edward Jones, set up a tiny Wall Street bureau that published a daily newsletter after the stock market closed. The newsletter tracked the daily performance of a handful of stocks, using a methodology that weighted the stocks according to their price. The companies with the highest stock prices received the highest weightings. The newsletter eventually became known as The Wall Street Journal and in 1896, the index became the Dow Jones Industrial Average.

At the time, The Dow Jones was a simple way to track the performance of a basket of stocks and like most things it has evolved enormously over the last 125 years. We have seen the world of indexing continue to evolve, moving from price weighted Indices to market-capitalization weighted, with the introduction of the S&P 500 Index in 1957, which gained immense popularity.

Where We Are Now

The ETF industry, both in Canada and the United States, has long been dominated by products based on market-cap weighted indices. While these strategies are extremely popular and serve a purpose as core building blocks in an investor’s portfolio, they also have several drawbacks. For one, market-cap indices assume the market is efficient and stocks are priced correctly. They are also:

• prone to pricing bubbles;
• have no rebalancing discipline; and are
• susceptible to concentration risk (think Nortel, RIM, or Valeant more recently in the S&P/TSX Composite Index)

CI WisdomTree Quality Dividend Growth Suite

To overcome these drawbacks, factor indices and factor investing was developed and have quickly gained prominence among investors. Factor indices are designed to track the performance of stocks with specific characteristics or “factors” such as dividends, quality or growth.

The CI WisdomTree Quality Dividend Growth ETF suite tracks a family of WisdomTree indices that are designed to overcome some of the issues of market-capitalization indices by taking a multi-factor approach. The indices invest and weight the companies based on the fundamental characteristics of each company, such as dividends, quality and growth. This evolved approach to core investing has proven to be an improvement over traditional index tracking and offers investors another portfolio-building tool. CI Global Asset Management offers the following three strategies that focus on WisdomTree’s Quality Dividend Growth Indices:

• CI WisdomTree Canada Quality Dividend Growth Index ETF (DGRC)
• CI WisdomTree U.S. Quality Dividend Growth Index ETF (DGR, DGR.B)
• CI WisdomTree International Quality Dividend Growth Index ETF (IQD, IQD.B)

A Deeper Dive

IMPORTANT DISCLAIMERS

Commissions, management fees and expenses all may be associated with an investment in exchange-traded funds (ETFs). You will usually pay brokerage fees to your dealer if you purchase or sell units of an ETF on recognized Canadian exchanges. If the units are purchased or sold on these Canadian exchanges, investors may pay more than the current net asset value when buying units of the ETF and may receive less than the current net asset value when selling them. Please read the prospectus before investing. Important information about an exchange-traded fund is contained in its prospectus. The indicated rates of return are the historical annual compounded total returns net of fees and expenses payable by the fund (except for figures of one year or less, which are simple total returns) including changes in security value and reinvestment of all dividends/distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. ETFs are not guaranteed; their values change frequently, and past performance may not be repeated.

This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or construed as an endorsement or recommendation of any entity or security discussed. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication.  Market conditions may change which may impact the information contained in this document. All charts and illustrations in this document are for illustrative purposes only. They are not intended to predict or project investment results. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. 

Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.