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Exploring Dividend Opportunities in Australia

A Balanced Approach to China A-Shares: The S&P China A 300 Index

China's Onshore Equities Beyond Large Caps: The S&P China A MidCap 500 Index

FAQ: S&P GSCI Climate Aware

360° of Climate – Indices for Every Objective

Exploring Dividend Opportunities in Australia

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Jason Ye

Director, Factors and Thematics Indices

S&P Dow Jones Indices

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Izzy Wang

Senior Analyst, Factors and Dividends

S&P Dow Jones Indices

We examined the Australian dividend market in the paper Analyzing High Dividend Yield Strategy in Australia and saw that historically, a hypothetical portfolio comprised of high dividend yield firms in Australia outperformed the broad market portfolio.  In this paper, we will outline how practitioners may use an indexing method to seek opportunities from high dividend yield strategies in the Australian market.

The Importance of Dividends

Dividends can be critical in Australian equity investments for four reasons: 1) dividends are a significant source of total return in the equity market; 2) dividend strategies can serve as an alternative for investors looking to generate income; 3) dividends as a factor have historically generated excess total return in empirical research; and 4) franking credits provide extra tax incentives for market participants to choose high dividend yield stocks.

Dividend Contribution to Total Return

While dividends’ contribution to equity total return is widely recognized globally, it appears to be more relevant in Australia particularly.  In the U.S., dividends and dividend reinvestment have accounted for over one-third of the S&P 500® total return since 1936.  Since 2000, dividends and dividend reinvestment in Australia accounted for more than one-half of the total return for the S&P/ASX 300, higher than 32% for the U.S. and 44% globally (see Exhibit 1).

Exploring Dividend Opportunities in Australia: Exhibit 1

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A Balanced Approach to China A-Shares: The S&P China A 300 Index

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Michael Orzano

Head of Global Exchanges Product Management

S&P Dow Jones Indices

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John Welling

Director, Global Equity Indices

S&P Dow Jones Indices

INTRODUCTION

China's economy and equity market have grown substantially in size and prominence over the past decade. Mainland-listed China A-shares have likewise become more accessible to global investors during this expansion, broadening the opportunity set beyond offshore shares. As of Dec. 30, 2022, over 75% of China's total equity value—equivalent to USD 11 trillion in total market cap—was represented by onshore listings, making the A-share market the second largest globally after the U.S.

Since 2004, the S&P China A 300 Index has offered efficient, representative exposure to these onshore companies. In this overview, we will cover the following key points.

  • Reasons one may want to consider China A-shares, including their underrepresentation in broad benchmarks, differentiated investment characteristics, and high return dispersions compared to offshore shares.
  • The S&P China A 300 Index has an extensive track record and offers potential methodology advantages compared with the widely used CSI 300, including:
    • The exclusion of sanctioned securities;
    • A sector balance consideration to improve industry diversification; and,
    • A profitability requirement to eliminate companies without a track recored of generating posititive earnings.

    CONSIDERATIONS FOR A-SHARE EXPOSURE

    While Chinese equities have grown in importance for international market participants, A-shares are limited to partial inclusion factors within broad benchmarks, leaving them significantly underrepresented in conventional Chinese and emerging market indices. While offshore-focused benchmarks tend to capture growth in technology-focused Consumer Discretionary and Communication Services sectors, onshore indices continue to provide broad exposure to traditional sectors and a growing share of Information Technology and Consumer Staples companies. Without representative inclusion of A-shares, China-specific exposure within indices could be considered incomplete.

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China's Onshore Equities Beyond Large Caps: The S&P China A MidCap 500 Index

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John Welling

Director, Global Equity Indices

S&P Dow Jones Indices

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Michael Orzano

Head of Global Exchanges Product Management

S&P Dow Jones Indices

Introduction

The S&P China A MidCap 500 Index seeks to provide representative exposure to mid-sized China A-shares while requiring positive earnings for index constituents and excluding sanctioned securities.  The index composition provides differentiated exposure when compared to the large-cap-focused S&P China A 300 Index due to the unique characteristics of the mid-cap size category. 

In this overview, we will explore why one may want to consider mid-cap China A-shares, including:

  • Their limited representation in conventional China and emerging market benchmarks;
  • The size and scope of the opportunity set;
  • Differentiated investment characteristics and high return dispersion compared to large-cap A-shares; and
  • A combination of both large-cap and mid-cap exposure provides broader coverage across sectors.

The methodology of the S&P China A MidCap 500 Index offers some additional potential benefits, including:

  • A profitability requirement to eliminate companies lacking a track record of generating positive earnings; and
  • The exclusion of sanctioned securities.

The Size and Scope of China A-Shares

While Chinese equities have grown in importance for international market participants, A-shares are limited to partial inclusion factors within broad benchmarks, leaving them significantly underrepresented in conventional Chinese and emerging market indices.  Without representative inclusion of A-shares, China-specific exposure within indices could be considered incomplete.

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FAQ: S&P GSCI Climate Aware

As the world continues to focus on sustainability and the energy transition, it is understandable that market participants are seeking to incorporate sustainability considerations into their commodities portfolios. To that end, S&P Dow Jones Indices (S&P DJI), utilizing a new environmental dataset developed in collaboration with S&P Global Sustainable1 (Sustainable1), has launched the S&P GSCI Climate Aware, which seeks to retain the inflation sensitivity and diversification benefits of the broad commodities market, but with a lighter environmental footprint than the benchmark S&P GSCI.

  1. What drove the creation of this index?  Sustainability considerations have become a major focus area for many market participants. Some asset classes such as equities and fixed income have led the way, with granular information already available to incorporate them into an investment strategy. Commodities, which play a key role in current environmental impacts and in the energy transition to come, have paradoxically lagged this evolution.

    In this context, market participants have expressed a desire for a broad, rules-based commodity index that incorporates sustainability considerations. The S&P GSCI Climate Aware addresses the need for an index that incorporates environmental considerations while maintaining the key attributes of the S&P GSCI, namely diversification and inflation protection.
  2. What is the S&P Global Commodity Environmental dataset?  Recognizing the need for increased transparency on environmental issues across commodity value chains, S&P DJI and Sustainable1 have developed the S&P Global Commodity Environmental dataset, which covers a range of agricultural, energy, precious metal and industrial metal commodities (including all of the S&P GSCI constituents). The dataset provides physical and financial impact data on GHG emissions, water consumption and land use at the commodity-level based on life cycle impact assessment (LCIA) factors, and natural capital valuation metrics. It can help investors understand the environmental risks and opportunities associated with their investment in specific commodities, as well as across portfolios, indices and benchmarks.
    More information on the dataset can be found here.
  3. What are natural capital valuation metrics? The natural capital valuation metrics presented in the dataset represent the costs to society and the environment caused by each impact.  These are the indirect costs of production that are not borne by polluters, but often incurred by other businesses and society at large through factors such as health impacts, property damage and lost amenities. The valuation metrics for greenhouse gas (GHG) emissions are based on global averages, due to the way they affect the environment and society.

    Sustainable1 values GHG emissions using an estimate of the social cost of carbon (SCC). The SCC represents an estimate of the marginal externality cost of GHG emissions, as it reflects the global cost of the damages caused by GHG emissions over their lifetime in the atmosphere. The impact of water consumption is valued based on the consequences of the restricted access to water on human health and the environment. The land use valuation methodology considers the ecosystem services lost when naturally occurring ecosystems are converted to artificial ecosystems or gained when natural ecosystems are restored or conserved.
  4. What are environmental CVIs?  The commodity valuation intensity (CVI) metric ascribes an economic value to each environmental impact on a unit of commodity production or per dollar invested (or dollar per contract value). This allows for comparison across commodities and across environmental impacts. Examples of CVI metrics are provided in the Exhibit 1.

    5. FAQ: S&P GSCI Climate Aware: Exhibit 1

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360° of Climate – Indices for Every Objective

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Jaspreet Duhra

Managing Director, Global Head of Sustainability Indices

S&P Dow Jones Indices

SUMMARY

  • There is a pressing need for the world to reduce its greenhouse gas emissions to decrease the risks and impacts of climate change. Responsible action is required by all stakeholders, including investors.
  • S&P DJI is at the forefront of innovative climate index design, leveraging the strength of climate datasets created by S&P Global Trucost.
  • S&P DJI’s climate change index offerings cater to a broad range of investor climate objectives; divestment, low carbon, net zero and climate solutions.

WHY CREATE CLIMATE CHANGE INDICES?

The Scientific Facts

The Intergovernmental Panel on Climate Change (IPCC) has stated that “human activities are responsible for approximately 1.1°C of warming since 1850-1900.” While current global climate policies aim to reduce baseline emissions, temperatures are still projected to rise by 2.5-2.9°C by 2100. The IPCC suggests limiting global temperature rise to 1.5°C from pre-industrial levels.

Impacts on natural and human systems from global warming have already been observed. Some impacts may be long lasting or irreversible, such as the loss of ecosystems.

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