To The Moon

The Lion-OCBC Securities APAC Financials Dividend Plus ETF has debuted on Singapore Exchange with Assets under Management (AUM) of S$47 million. Tracking the iEdge APAC Financials Dividend Plus Index, the ETF is designed to provide access to stable dividend payout attributes and growth in the financial sector, with the APAC region consisting of Australia, Hong Kong, Japan, Singapore, Korea, Indonesia, Malaysia, and Thailand. The five current largest weights of the underlying iEdge APAC Financials Dividend Plus Index are tabled below. 

The APAC Financial Sector 

The iEdge APAC Financials Dividend Plus Index has gained 19% in the 2024 year through to 10 May. APAC’s financial system remains a key driver and enabler of regional growth. Apart from effecting growth, the Sector is also affected by the pace of regional growth, in addition, to outlooks for trade, inflation and interest rates. Economic divergences across the region also means that not all of APAC’s Financial stocks are moving in tandem. 

BOJ Governor Ueda noted back in March that ‘interest rates have been raised in many APAC jurisdictions, though inflation rates and interest rates vary across countries and regions, depending on their respective economic conditions’. Such divergences, have priced APAC Financial Stocks at varied levels compared to respective historical valuations, from multiple heavyweights of the Hong Kong Financial Sector trading at significant discounts to their 5-year price-to-book ratios, to multiple heavyweights of the Japan Financial Sector trading at significant premiums to their 5-year price-to-book ratios. At the same time the APAC Financial Sector is also impacted by mega structural economic themes such as digitalisation and the need to address climate change through the financial sector. 

APAC Banks up 85% of the weights of the iEdge APAC Financials Dividend Plus Index, with 10% representation of Insurance companies and 5% representation of Investment Services companies. 

While the margins of the APAC Ex-China Commercial Banking Sector has been buoyed by higher interest rates, resilient economic growth has also contributed to the Sector’s comparative outperformance in early 2024.

Optimising the APAC Financials Portfolio

The iEdge APAC Financials Dividend Plus Index represents 30 stocks within the Asia Pacific Financial Sector that maintain a combined market value of US$2.0 trillion, including $DBS Group Holdings(D05.SI)$ $ocbc bank(O39.SI)$ $UOB(U11.SI)$ However, as an Index, the market capitalisation is reduced to S$1.2 trillion due to dual-listing capitalisation methodology, in addition to measures that attempt to mitigate concentration risk and boost diversification within the Index. 

At each semi-annual rebalance the Index sees a 20% cap on the majority country weights and 7% caps on individual constituents. This means for instance, at the most recent March semi-annual rebalance, comparatively large constituents such as Commonwealth Bank of Australia (CBA), with a free float market capitalisation close to S$200 billion, firstly saw its weight capped at 7%. The stock weighting was then reduced again to 4%, as the combined weightage of the six Australia listed constituents were capped at 20%. This portfolio optimisation procedure might otherwise have seen CBA represent up to 13% and the Australia-listed banks represent close to 40% of the Index, based on total market capitalisation. 

The Index currently maintains a 5.3% dividend yield. New constituents must meet a minimum 2-year average dividend yield of 3.5%. Existing constituents must meet a minimum 2-year average dividend yield of 3.0%.

The full constituents of the Index and recent performances of the Index are tabled below. 

https://www.sgx.com/research-education/market-updates/20240513-apac-financials-div-plus-index-chalks-19-ytd-total