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on september 11, the dividend sector collectively fell into adjustment, and the power, banking, coal and other sectors all plummeted. this is also a microcosm of the recent pullback of related sectors. from may 22 to date, the overall dividend index has retreated by as much as 18.29%, not only wiping out the previous accumulated gains, but also the overall decline this year is as high as 5.35%. during this period, stock investors or fund investors who heard the news all faced a large pullback.

some fund managers believe that there are many factors that have led to the adjustment of the dividend sector, including the valuation has reached a high in recent years, the dividend rate has declined, overseas macro factors and some companies have not met expectations. however, many public funds are optimistic about the future of the dividend sector. some fund companies believe that with the recent market volume reduction and correction, the crowding of dividend trading has fallen back to a reasonable range; when market sentiment is low or in a downward phase, funds usually look for relatively certain assets, and judging from past long-term and medium-term performance, the dividend strategy has a certain ability to "cross the cycle" and is a sector that long-term funds naturally prefer.

collective adjustment of dividend sector

as the "pillar" of this year's dividend market, yangtze power has risen more than 7 times in the past decade since its low point in 2014. during this period, it has quietly become another "belief" in the a-share market with its stable stock price trend and high dividend strategy. however, after hitting a record high in late july this year, yangtze power's stock price seemed to be weak in rising, and on september 11, it fell 4.63% in a single day, leading the decline of dividend stocks.

in addition to yangtze power, china national nuclear corporation and china general nuclear power corporation fell more than 4% on september 11, and bank of china, china shenhua, china national petroleum corporation, and china national offshore oil corporation also fell significantly. in fact, the dividend sector fell sharply after a rapid rise at the beginning of the year. from may 22 to date, the overall retracement was as high as 18.29%, which not only wiped out the previous accumulated gains, but also the overall decline this year was as high as 5.35%.

in addition, the market trend within the dividend sector is not facing a large differentiation. since the second half of the year, the coal sector has fallen by more than 20%, the hydropower index has fallen by about 15%, the non-ferrous metal sector has fallen by more than 13%, and the banking sector has been relatively resistant to declines, with a decline of less than 5%. and from a detailed perspective, it will be found that not all dividend assets have fallen in unison in this round of adjustments, but rather that the strong direction has gradually "shrunk". a recent research report by gf securities also stated that dividend assets have experienced a process of "general rise in the early stage → coal began to underperform in june → copper & oil began to underperform in early july → hydropower & banks began to underperform in late july".

why are dividends also "unstable"? zhou shuai, fund manager of minsheng jiayin fund, believes there are four reasons:

first, the relative valuation level of dividend indexes was at a stage high in late may. from historical statistical data, when the relative valuation level of dividend indexes approaches an extreme value, the possibility of their excess return attributes declining is also relatively high.

second, the dividend rate of the dividend index has declined. the dividend index continued to rise in the first half of the year, and the growth of the denominator led to a decline in the dividend rate of the index; at the same time, since the recent period is the peak period for dividend distribution by listed companies, the dividend payout on the numerator of the dividend rate will also be dynamically adjusted. affected by fundamentals, some companies have reduced their dividend payout this year. the combined influence of the numerator and denominator has caused the dividend rate of the dividend index to decline, and the attractiveness to some funds may have weakened.

third, due to the impact of overseas macroeconomic factors, overseas recession transactions have heated up recently, commodity prices have fallen, and some resource dividend stocks have been significantly dragged down.

fourth, factors at the capital and investor behavior level have an impact. zhou shuai believes that at the trading level, some funds have recently switched to sectors that performed poorly in the previous period but have marginally improved performance. at the same time, the dividend style, as a defensive sector in the existing market, has achieved considerable returns since the beginning of the year to late may, which has further strengthened the motivation of some funds to take profits.

"from an event-driven perspective, studies have found that some investors tend to buy before individual stocks pay dividends, and start selling after receiving cash dividends. the recent period is the peak period of dividend events. we believe that investor behavior has also contributed to the recent decline in the excess return attributes of the dividend index." zhou shuai said.

zou hui, general manager of the equity investment department of industrial bank fund, also believes that the recent decline in dividends is mainly due to the fact that the performance of some dividend companies has not met expectations, especially the price of some cyclical industry products has fallen, which has caused the market to have certain doubts about the stability of their profits.

funds also face drawdowns

as individual stocks continued to fall, the net value of funds also suffered losses. recently, dividend and dividend low-volatility related etfs also continued to fall. on september 11, many dividend etfs and dividend low-volatility etfs fell by more than 2%. the dividend low-volatility etf that tracks the dividend low-volatility index fell by 2.43%.

looking at the long term, the net value of many related etfs has retreated significantly since the second half of the year. the average decline of the 29 products included in the statistics is as high as 7.5%. however, during this period, investors have been quite steadfast, with few signs of large-scale redemptions, and even buying more as the market falls. for example, the shares of wan csi dividend etf increased by 3.7 billion shares, the shares of bosera csi dividend low volatility 100 etf, harvest csi 300 dividend low volatility etf and xinhua csi dividend low volatility etf increased by more than 400 million shares, and the shares of huatai-pinebridge dividend low volatility etf decreased by 866 million shares, but the impact on its previous scale of nearly 8.7 billion shares was limited.

in terms of active equity funds, take yangtze power as an example. as of the end of the second quarter, yangtze power was also one of the most favored dividend assets by public funds. the number of public funds holding yangtze power was as high as 700, an increase of nearly 200 compared to the end of 2023. in addition, in the first and second quarters of this year, yangtze power continued to receive increased holdings from public funds, with the number of increased holdings exceeding 324 million shares and 131 million shares respectively.

as of the end of the second quarter, a total of 85 active equity products listed it as their largest holding, but the net value of these funds was also dragged down by the downward trend in stock prices. funds such as oriental fortune qisheng three-year holding, xinyuan growth driven, and shenwan hongyuan industry rotation have fallen by more than 10% in the second half of the year.

in fact, as early as the second quarter report, when the dividend sector was still at a high level, fund managers had different opinions on the future of the dividend sector. tan li, fund manager of harvest fund, said: after the continuous rise of dividend assets, the valuation has become reasonable. if the non-ferrous metal sector continues to rise, the expectation of commodity price increase needs to be further strengthened. from the perspective of investment cost performance, the attractiveness has declined.

how do fund companies view the market outlook?

huatai-pinebridge fund believes that as the almost "unique" existence in the a-share market in the early stage, the trading congestion index of the dividend strategy once pointed to a historically high level, but with the recent market volume reduction and correction, the dividend trading congestion has fallen back to a reasonable range.

in terms of valuation, taking the dividend index as an example, as of september 11, the index's price-to-earnings ratio (pe) (ttm) was 6.65 times, which was in the low-middle range of 28.18% in the past decade, and the price-to-book ratio (pb) (lf) was 0.69 times, which was in the 15.66% percentile in the past decade. huatai-pinebridge believes that the current valuation of the dividend sector is at a reasonable level, both in terms of absolute numbers and relative percentiles. especially after the short-term pressure is released, the valuation may still have room for further increase from a medium- to long-term perspective.

morgan funds said that generally speaking, when market sentiment is low or in a downward phase, funds usually look for relatively certain assets. the essence of the dividend strategy is to bring together high-dividend stocks, and stocks that can stably provide high dividends are usually in the leading position in the industry, with stable profitability and abundant cash flow. at the same time, the valuation of these stocks is generally low. therefore, judging from the past long-term and medium-term performance, the dividend strategy has a certain ability to "cross the cycle."

it is worth noting that in addition to the funds' adherence to the dividend sector, insurance funds with lower risk appetite may prefer the dividend sector. tianhong fund said: "it is very important to look at the source of incremental funds. insurance funds injected a lot of liquidity into the high dividend sector in the first half of the year. looking back, according to the data from the state financial supervision and administration bureau and industrial securities, the equity positions of insurance funds are still at a relatively low level. since these funds are long-term funds, they naturally prefer the dividend sector with low valuations and high dividends, so they are expected to continue to allocate dividend sectors and promote the performance of related assets in the future."