In a significant development for investors seeking stability in turbulent markets, the new Low Volatility Dividend ETF (563020) has officially launched todayThis fund adds to the growing array of Smart Beta strategies designed to optimize returns while managing riskAs more investors turn their attention to dividend strategies, understanding the underlying principles of this new offering becomes crucial.

The essence of dividend strategies revolves around the idea that companies yielding substantial dividends often exhibit strong earnings qualityThe analogy often used is that "a tree bearing more fruit typically grows taller." In other words, firms that consistently distribute dividends tend to have stable profit margins and robust business modelsThis ETF employs a methodology centered on selecting stocks with stable dividends, targeting companies that have paid cash dividends consistently over the past three years, with an after-tax cash dividend yield exceeding zero each year.

To refine this selection process, additional factors such as the previous year’s dividend payout ratio and the three-year growth rate of dividends per share are incorporatedThe former helps to ensure that companies are not overextending their dividend payouts, while the latter aims to identify companies with a consistent upward trajectory in their dividend distributions.

But what exactly does the combination of dividends and low volatility entail? This is where the innovation of the Low Volatility Dividend strategy comes into play.

Expanding Dividend Strategies

When examining dividends, three primary elements contribute to the dividend yield: earnings per share, payout ratio, and stock priceGenerally, companies with a high dividend yield demonstrate strong operational performance and profitability, providing a solid foundation for substantial dividendsFurthermore, a company’s willingness to distribute profits as dividends reflects its commitment to returning value to shareholders.

High-dividend companies tend to feature characteristics such as stable performance and relatively low valuations, which can help investors avoid overpriced stocks and mitigate downside risks

Advertisements

In essence, the dividend style not only offers stable income but also typically maintains lower volatility and drawdowns.

By integrating a low volatility factor into the dividend model, the newly launched index enhances the defensive attributes of traditional dividend strategies, showcasing a favorable risk-reward profileStocks exhibiting lower volatility generally reflect market consensus, with less divergence in investor expectationsThis stability can lead to lower price fluctuations compared to companies facing substantial earnings declines that threaten their ability to sustain high dividends.

How Does Smart Beta Enhance Returns?

The CSI Low Volatility Dividend Index combines traditional dividend metrics with the low volatility factor, selecting 50 stocks that exhibit strong liquidity, consistent dividend payments, moderate payout ratios, positive growth in dividends per share, and low volatilityThese criteria ensure that the index reflects the performance of securities that not only deliver high dividends but also exhibit lower price fluctuations.

From an industry distribution perspective, key sectors such as banking, steel, media, and construction materials dominate the index’s weightThese industries typically feature strong cash flows and stable dividends, making them well-suited for this investment strategy.

The index comprises mature companies with reliable profitability, maintaining a high historical return on equity (ROE). With robust cash flows generated from operational activities, these firms are positioned to sustain high dividend payouts.

Performance in a Volatile Environment

This year has been characterized by market fluctuations, and the CSI Low Volatility Dividend Index has demonstrated impressive resilienceAccording to Wind data, the index achieved a return of 12.99% as of December 12. When viewed over a longer time horizon, the annualized return for the past three years stands at 9.99%, reflecting the index's strong performance amidst varying market conditions.

In 2025, the A-share market has primarily exhibited a volatile trend, and the Low Volatility Dividend Index has showcased its dual capability of offense and defense

Advertisements

Advertisements

Advertisements

Advertisements