At the start of this year, the financial landscape was marked by the rising popularity of quantitative strategies and micro-account trading strategies, which seemed to be gaining tractionHowever, as the year progressed, these strategies began to falter, while the focus on dividend stocks emerged sharply, nearly dominating market conversations.

As we approach the crucial 2700-point support level, it is alarming to note that the few remaining survivor stocks tied to dividends are also showing signs of weaknessThe market feels less expansive, narrowing the scope for growth as concerns about volatility creep in.

Investment in dividend-themed funds thus resembles a marathon race—initially, many rushed to establish their positions, only to gradually differentiate themselves as conditions shifted, adjusting their strategies amid changing landscapes.

Recently, however, a significant market correction occurred in the dividend sector

Advertisements

To gauge the situation, I filtered through a list of actively managed equity funds with names that include “dividend” or “high dividend yield,” excluding those launched in 2023, to analyze how these funds have performed in light of recent fluctuations.

Throughout the first half of this year, the performance of dividend indices surged until a peak was reached on April 19, only to be followed by a downturnThis marked a distinct partition in the timeline, allowing us to dissect performance before and after this critical date.

One fund that stood out in the initial surge was the China Europe Dividend Preferred Fund, which saw substantial inflows during the second quarter, boosting its scale by nearly 1.3 billion yuanPreviously dominated by institutional investors, the fund garnered a wave of individual investors, who reshaped the ownership structure due to its compelling performance.

This fund’s strategy is notably characterized by a blend of dividends and value investing, focusing on stocks that align with themes such as "central government estimates, upstream resources, and high dividend yields," enabling it to capitalize on emerging market trends effectively.

A consistent allocation to Hong Kong equities positioned the fund well for the strong rebound observed in April and May, hitting new all-time highs during this period

Advertisements

Nonetheless, following a significant pullback in resource stocks towards the end of May, the dividend index faced renewed downward pressure, a trend that has persisted.

There’s a silver lining for the China Europe Dividend Preferred Fund, as its balanced sector allocations and the selection of undervalued, high-quality stocks have provided some control over drawdownsThe fund has remained positive through fluctuations, continuing to attract investor interest.

According to the fund's interim report, portfolio manager Lan Xiaokang remains focused on high-yield sectors such as large financial entities and upstream resources while maintaining optimism about commodities like oil and gold.

A surprising entry in the dividend space is the Changsheng Quantitative Dividend FundAs a quantitative fund, its performance has been more than decent this year, with growth in the second quarter

Advertisements

The success can be attributed partly to its focus on dividend strategies rather than micro-account strategies, which have faced challenges this year.

Even amid claims of oversaturation in the dividend space, many dividend funds succeeded in generating returns earlier this yearChangsheng’s approach hinges on identifying expected dividends and profits, emphasizing forward-looking measures that mitigate risks often tied to the historical dividend yield trap many investors fall into.

With an impressive maximum drawdown of only -6.67% thus far, the fund's management experience has been favorable, enhancing its attractiveness to investors.

As we shift our gaze to the mid-course resilience of funds since the downturn began on April 22, it’s imperative to focus on how well funds have managed to maintain their earlier gainsMy analysis from April 22 to September 9 highlighted that only a handful of funds, including the E Fund Hong Kong Dividend Fund and ICBC Dividend Preferred Fund, managed to register positive returns during this period.

The E Fund focusing on Hong Kong equities has struggled over the past three years, but the high dividend yields available this year have offered some respite

• Boosting Growth: The Role of Efficient Circulation
• Challenges in Reforming the EU Electricity Market
• Integrating Innovative Resources
• Is a 4.8% U.S. Treasury Bond Worth Buying?
• Interest Rate Cuts, But Funds Are Unavailable

This fund applies a diversified, balanced, and contrarian investment style, making minor adjustments to sector weights, reducing exposure from high-valuation sectors while bolstering positions in undervalued segments.

The second-quarter growth in this fund’s scale mainly stemmed from institutional investments, reflecting a belief in the potential for rebounds within the Hong Kong market amidst favorable policy shifts.

However, focusing solely on dividends may overlook broader market trends affecting Hong Kong stocksOn the other hand, the ICBC Dividend Preferred Fund presents a unique strategy, concentrating primarily on infrastructure rather than the traditional cyclical and financial sectorsThis positioning shields it from macroeconomic fluctuations, given the stability typically associated with infrastructure investments.

Such stability has allowed core investments in utilities and transportation to perform robustly this year

Still, within this focus, the fund practices a degree of diversification across sub-sectors, investing in utilities, airports, highways, railroads, ports, telecommunications, and essential services such as water and gas.

Moreover, the fund has also tapped into Hong Kong’s evolving infrastructure market, which offers an attractive valuation umbrella compared to other markets.

Notably, in today's environment where defensive equities are paramount choices for risk-averse investors, the decline in dividends symbolizes a pivotal challenge amid attempts to defend the 2800-point threshold, suggesting that these cloistered havens might not provide the entirely stable refuge investors seek.

The current landscape reveals a stark reality: among the filtered dividend-themed funds, very few maintain positive gains for the year, presenting a nearly 40% disparity between top and bottom performers