Australia
China
India
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
Volatility in markets has pushed investors to consider risk-averse options such as income funds. Asia dividend ETFs are an option where investors can weather economic uncertainties.
“The main reason for renewed interest in dividend strategies has to do with the current situation in the markets. More handsome bond yields, stable equity markets and relatively robust profit margins are being met by stubbornly high inflation rates, central banks shambling nervously from data point to data point, and uncertainty about whether some regions will slide into recession this year,” as per Björn Jesch, Global Chief Investment Officer at DWS Group.
The MSCI Asia Pacific Index, which tracks large and mid-caps across certain developed and emerging markets in Asia Pacific, has risen 2.77% year to date, as of May 31. Whereas the MSCI Asia High Dividend Yield Index, which includes high dividend-paying equities from Asia, has risen 4.13% year to date, in the same period.
Asian economies already seem to have brought inflation under control, but the wonky recovery in China and the negative impact of a recession in the US and Europe make a strong case for considering Asia dividend ETFs.
There is uncertainty about whether the US Federal Reserve is done with interest rate hikes, but dividend income in Asia is quite essential. Research done by Schroders found that nearly three-quarters of returns from Asia equity came from dividends.
“Given how big a component of long-term equity returns dividends have historically been, and knowing how strong their demand from the ageing population will be, any investor who is looking for fast-growing companies with strong corporate governance in Asia will do well to pay heed to them,” writes King Fuei Lee, Co-head of Asian Equity Alternative Investments, Schroders.
The dividend returns from Asia have historically been better when compared with the US and Europe. “Asian dividend-yielding equities also have a low correlation to Asian and global bonds — a plus for investors seeking to build a diversified portfolio of income-producing assets,” as per Katerina Irwan, Portfolio Manager at Eastspring Investments.
Asia dividend ETFs
While there are ample Asia income funds in the market, we take a look at Asia dividend ETFs which might offer a cheaper alternative to investors.
iShares Asia Pacific Dividend ETF
The iShares Asia Pacific Dividend ETF tracks the performance of Dow Jones Asia/Pacific Select Dividend 50 Index and was launched in June 2006. The fund has a quarterly distribution frequency and constituents are rebalanced annually.
As of June 6, 2023, the ETF had net assets of $371.57m, and had a distribution yield of 7.54%. The fund has a total expense ratio of 0.59%. Since its inception, the iShares ETF has given 87.89% returns.
The top five holdings of the ETF are Mitsui OSK Lines (4.29%), Vtech Holdings (4.01%), Magellan Financial Group (3.79%), Nippon Yusen (3.69%), and PCCW (3.06%).*
Sector-wise, the fund is largely invested in industrials (19.53%), followed by financials (19.27%), real estate (14.72%), consumer discretionary (11.69%) and materials (11.64%).*
The country-wise allocation of the fund is as follows – Australia (38.75%), Hong Kong (28.75%), Japan (24.91%), Singapore (5.83%), and New Zealand (2.03%).
SPDR S&P Pan Asia Dividend Aristocrats ETF
The ETF by State Street Global Advisors tracks the performance of high dividend yielding equities from Asia Pacific and is benchmarked against the S&P Pan Asia Dividend Aristocrats Index which measures performance of companies which have consistently increased dividends for at least seven consecutive years.
Launched in 2013, the ETF has a total expense ratio of 0.55% and has a semi-annual distribution frequency. The ETF has total assets worth $134.68 m, as of May 31.
The fund has a distribution yield of 3.52%, and the total market capitalisation of holdings is $8.84 bn.**
The top five holdings of the ETF are Wistron Corp (8.36%), JB Hi-Fi (3.18%), CK Infrastructure Holdings (3.09%), Sinopharm Group Co-H (2.9%), and Guangdong Investment (2.92%).**
On the sectoral front, the fund is largely invested in IT (20.39%), followed by real estate (14.82%), utilities (12.90%), healthcare (12.88%), and financials (10.72%), among others.**
The ETF has the highest allocation for Japan (33.83%), followed by China (18.62%), Australia (15.6%), Taiwan (13.89%), and Hong Kong (11.21%), among others.**
*as of June 6, 2023
**as of May 31, 2023
