Liu Yuqiang, a Fund Manager in the Index and Quantitative Investment Department of Boshi Fund, shares his insights.
What are the main characteristics of the current market?
Liu Yuqiang: The current market can be summarized by three key terms: high volatility, rapid rotation, and multiple interwoven factors. High volatility is reflected in frequent geopolitical events, rapidly shifting market risk aversion, and intensified market fluctuations. Rapid rotation is evident in the fast pace of style shifts, with frequent switches between value and growth styles, and a clear pattern of short-term capital speculation. Multiple interwoven factors refer to the interplay between geopolitical risk-off and de-escalation expectations, global inflation and monetary policy tightening/loosening expectations, and the capital expenditure logic of the AI industry chain. In such a market environment, betting solely on one style may lead to a poor investment experience, requiring investors to consider asset allocation strategies more prudently.
What impact do changes in Federal Reserve policy have on the A-share market?
Liu Yuqiang: Federal Reserve policy has a significant impact on global capital markets, influencing A-shares primarily through two channels. Regarding capital flows, if U.S. dollar interest rates remain high, global capital may tend to stay in the U.S. market, exerting some pressure on the liquidity of emerging markets, including A-shares. Regarding style divergence, a high-interest-rate environment increases asset discount rates, potentially exerting more pronounced pressure on growth stocks with relatively high valuations. In contrast, dividend-yielding assets have lower valuations and relatively certain dividend yields, potentially demonstrating stronger resilience in volatile environments. Therefore, changes in Federal Reserve policy may periodically intensify the style rotation within the domestic market between growth and defensive plays.
What is the 'Growth + Dividend' barbell strategy?
Liu Yuqiang: The 'Growth + Dividend' barbell strategy is an asset allocation method that resembles a barbell in shape, with heavier weights on both ends and a lighter middle. The specific allocation method involves primarily allocating funds to two types of assets. One end consists of defensive, dividend-oriented assets, such as high-dividend banks and coal stocks, used to reduce portfolio volatility. The other end consists of offensive, technology growth assets, such as AI and semiconductors, used to pursue portfolio return potential. Its core concept is to use relatively certain assets to reduce portfolio risk and high-volatility assets to seek returns, achieving portfolio risk hedging through the low correlation between the two ends. This helps to reduce overall account volatility and improve the investment experience.
How does the 'Dividend + Growth' strategy balance risk and return?
Liu Yuqiang: Dividends and growth play the roles of 'shield' and 'spear' respectively in the portfolio. As the shield, the dividend end's core function is to potentially provide relatively stable cash flow. During market declines, dividend assets may experience relatively smaller drawdowns, and dividend income may act as a shock absorber. As the spear, the growth end's core function is to capture growth potential. Technology growth stocks have greater earnings elasticity; once the industry cycle turns upward, stock price performance is expected to be strong. During market rallies, growth assets may have greater elasticity, helping to boost portfolio returns. Combining the two helps smooth volatility, making the overall return curve more stable. In summary, dividend assets may be relatively resilient during market corrections, while growth assets are expected to lead the charge during market upswings.
What is the core logic of the dividend strategy?
Liu Yuqiang: The core investment logic of the dividend strategy can be summarized as relying on companies' continuous dividend payments to obtain cash flow in volatile markets. Currently, the rolling dividend yield of the CSI Dividend Index is around 5%. Against the backdrop of declining deposit rates and lower money market fund returns, this yield level holds certain attractiveness. Companies capable of sustaining high dividends often indicate strong profitability and healthy cash flow, which also forms the core support for the dividend strategy.
How to choose a suitable dividend index product?
Liu Yuqiang: It is recommended to make a comprehensive judgment from five dimensions. First, consider the factor composition. For a focus on dividend yield, one can choose the SSE Dividend Index or the CSI Dividend Index. For a combination of high dividend yield and low volatility, the Dividend Low Volatility series indices can be prioritized. For those bullish on the state-owned enterprise reform theme, the Central Enterprise Dividend Index is an option. Second, consider the volatility characteristics. The annualized volatility of the Dividend Low Volatility Index is relatively low. Third, consider the industry distribution. The CSI Dividend Index is biased towards industries like finance and coal, while the CSI Dividend Low Volatility 100 Index has a relatively balanced industry layout. Investors can choose based on their own industry views. Fourth, consider the weighting rules. The SSE Dividend and CSI Dividend Indices use dividend yield weighting, which may lead to greater market elasticity. The CSI Dividend Low Volatility 100 Index combines dividend yield and volatility weighting, potentially resulting in a smoother trend. Fifth, consider product liquidity. For listed ETFs, focus on those with larger scale and higher average daily trading volume to reduce liquidity risk. In summary, there is no single index absolutely suitable for all investors; only indices that match one's own risk preferences and investment objectives.
What are the current valuations and crowding levels of dividend assets?
Liu Yuqiang: These are two questions of greater concern to investors. Regarding valuation levels, the current valuation of dividend assets is relatively reasonable overall. Taking the CSI Dividend Index as an example, its current price-to-earnings ratio is around 8 times, and its price-to-book ratio is around 0.8 times, near its historical median. Regarding trading structure and crowding, current market funds are mainly concentrated in the technology growth sector. The overall trading volume of dividend indices as a proportion of the total market is at a historically low level, with moderate trading activity and a healthy structure, indicating no issue of excessive sector crowding. Overall, current dividend assets may be at a favorable window for allocation. However, investors should also note that valuation levels fluctuate with market changes, and past data does not represent future performance.
What are the characteristics of the CSI Dividend Low Volatility 100 Index?
Liu Yuqiang: The CSI Dividend Low Volatility 100 Index selects 100 listed company securities with good liquidity, continuous dividend payments, high dividend yield, and low volatility as index components. It uses dividend yield/volatility weighting to reflect the overall performance of listed company securities with high dividend yield and low volatility. The CSI Dividend Low Volatility 100 Index combines both dividend and low volatility factors. At the stock selection level, the index sets dual thresholds, requiring component stocks to have paid continuous dividends for the past three years and meet dividend yield standards, while also screening for low-volatility stocks. This helps eliminate targets with dividends as a one-time benefit at the peak of a cycle and those with剧烈 stock price fluctuations. Regarding the rebalancing mechanism, the index adjusts its components quarterly, a higher frequency than ordinary broad-based indices. The rules also limit the weight of any single CSI secondary industry to no more than 20%, reducing industry concentration risk. Quarterly rebalancing promptly removes stocks that have suspended dividends, experienced soaring volatility, or deteriorated fundamentally, while incorporating new high-quality stocks. However, investors should also note that the index includes some strongly cyclical industries. If macroeconomic demand weakens and commodity prices decline, the profits of related companies may come under pressure, thereby affecting dividend performance.
What are the differences between A-share and Hong Kong-listed dividend indices?
Liu Yuqiang: There are significant differences between the dividend indices of the two markets. Hong Kong-listed dividend indices may have higher dividend yields because Hong Kong stock valuations have long been lower than A-shares. The same dividend amount divided by a lower stock price naturally results in a higher dividend yield. Hong Kong-listed dividend indices have two significant differences compared to A-share indices. First is currency risk. Hong Kong stocks are priced in Hong Kong dollars, and fluctuations in the RMB-HKD exchange rate directly affect the actual returns of mainland investors. Second is market volatility risk. Hong Kong stocks have no price limit rules and have mature short-selling mechanisms. Coupled with greater influence from overseas capital and geopolitical situations, their overall volatility amplitude is much higher than A-shares. Regarding allocation advice, A-share dividend indices may be more suitable for risk-averse investors seeking stability. Investors pursuing higher dividend yields and with some tolerance for overseas market volatility can appropriately allocate Hong Kong-listed dividend index products as a supplement.
How to configure a barbell portfolio? How to conduct dynamic rebalancing?
Liu Yuqiang: The allocation ratio should vary from person to person. More conservative investors may consider allocating more to dividend assets and less to growth assets, using a small position in growth assets to seek potential. Aggressive investors may consider allocating a higher proportion to growth assets, using a small amount of dividend assets to reduce the overall portfolio volatility. Conducting dynamic rebalancing during asset allocation is very important. There are mainly two rebalancing methods. The first is time-based rebalancing, which involves rebalancing at fixed intervals, such as every six months or annually, restoring the portfolio to its initial allocation ratio regardless of market movements. This method is simple to operate and does not require frequent monitoring. The second is threshold-based rebalancing, which does not have a fixed time interval. Instead, rebalancing is executed when a single asset's allocation deviates from the initial ratio by a certain range (e.g., +/-10%). This ratio is for reference only and should be set appropriately based on the investor's risk tolerance. This rebalancing method is more sensitive and may control portfolio risk more promptly.
Note: Index-related information comes from index compilers. Please refer to the information released by the index compilers for specifics, as it may change subsequently.
Risk Disclosure 1: The above information is for investor education only and does not constitute any investment advice. Investors should not rely solely on this information to make decisions or use it to replace their independent judgment. Information cited is from publicly available sources. While efforts are made to ensure its accuracy and completeness, no guarantee is provided, and no responsibility is accepted for any losses arising or potentially arising from its use. Unauthorized commercial dissemination or editing by third-party institutions or individuals is prohibited.
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