The S&P China A-Share LargeCap Low Volatility High Dividend 50 Index is designed to offer liquid and tradable exposure to dividends and low volatility, two well-known risk factors that have delivered risk premium in the China A-share market in the past.
The two factors are combined through sequential dividend and low volatility screens. Companies exhibiting high dividend yield may fall in a “dividend trap,” since high dividend yield can be caused by decreasing stock prices rather than increasing dividend payments. Overlaying a low volatility screen on a high dividend portfolio may help to eliminate the dividend trap, resulting in improved absolute and risk-adjusted returns.
Since inception, the index has shown robust return, lower risk, reduced drawdown and cheaper valuation than its benchmark. The index may be appealing to those who wish to maintain equity exposure during turbulent market environments or those who are interested in increasing equity exposure but have limited risk appetite.
Uncertainty has been a common theme for the China equity market since 2021, amid worries over economic slowdown. The S&P China A-Share LargeCap Low Volatility High Dividend 50 Index may help to provide a defensive and resilient solution for investors to ride through this challenging period.
1. How does the index work?
The S&P China A-Share LargeCap Low Volatility High Dividend 50 Index is designed to have significant large-cap and high dividend exposure while limiting volatility. Index construction starts from the S&P China A Domestic LargeCap, which consists of the top 70% of stocks by float market capitalization in the China A market. As of Dec. 31, 2023, the S&P China A Domestic LargeCap had 610 constituents. First, the top 100 stocks with the highest yields are selected. After that, volatility screening is applied to eliminate the 50 most volatile stocks. To maximize dividend exposure, the remaining 50 names are weighted by dividend yield. The index rebalances semiannually in January and July.
