There is so much uncertainty facing investors from geopolitical stresses to inflation, the highest interest rates in two decades and potentially a recession. Finding an investment strategy to work amid all those risks is a big challenge, but the WisdomTree Global Quality Dividend Growth ETF (GGRG) looks like a good option.

Since launching in 2016 the exchange-traded fund has outperformed the MSCI World index, delivering a compound annual return of 10.9% a year compared with 10% for the index while providing a smoother ride for investors.

It has outperformed the market 75% of the time over 12-month periods since launch.

This isn’t necessarily a fund to buy for income as it only yields 2.2%. Instead, it’s about accessing companies with growing dividends as these are typically ones with strong balance sheets and quality characteristics. The ongoing charge is 0.38%.

The ETF is constructed around dividend-paying companies which display the best combined rank of earnings growth, return on equity, and return on assets.

Companies with higher-than-average return on equity and assets tend to have higher quality and more stable earnings. In addition, the index being tracked screens for ESG factors which means certain stocks are excluded.

Qualifying stocks are risk-tested to screen out the riskiest companies and potential value-traps.

The final layer of portfolio construction provides a valuation discipline in that each stock is weighted based on the cash dividend paid.

Head of quantitative research at WisdomTree Pierre Debru has analysed the last seven Federal Reserve’s rate hiking cycles to investigate how high-quality stocks have performed in the following 12-months. In absolute terms there is a wide dispersion of outcomes with stocks gaining 24% in the best period and falling 18.8% in the worst. But what is interesting is that higher quality companies display more consistency, outperforming on six out of the seven occasions.

High-quality stocks captured most of the upside but provided a big cushion when stocks were weak. For example, the only underperformance was in 1998 when high quality delivered 23.3% compared with 24.3% for the index.

Reassuringly, when the market dropped 18.8% in 2007, quality fell by only 10%. Capturing less of the downdraughts is key to delivering higher returns over the long run.

The same consistency is found when analysing relative performance in economies growing at different speeds. Low-quality stocks only outperformed the market when the economy was booming. But high-quality stocks outperformed in both low and high growth economies.

It is impossible to find an investment which will outperform in all markets, but the WisdomTree Global Quality Dividend Growth ETF offers some protection in falling markets while giving investors access to the upside during the good times.

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