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.
Over the 10-year back-tested period, 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 but limit risk or those who are interested in increasing equity exposure without increasing risk.
Uncertainty has been a common theme throughout 2019 and rolling into 2020, with escalated risk of Covid-19. The S&P China A-Share LargeCap Low Volatility High Dividend 50 Index may help to provide an alternative for investors to ride through this challenging period.