Dividend yield funds perform better than Sensex, Nifty

Dividend yield funds perform better than Sensex, Nifty


MUMBAI: As the market brings in fall in share prices, returns and sentiments, there are funds that haven't much borne the brunt of the massive dip. These are dividend yield funds.

At a time when the Sensex has fallen to more than 27 per cent in one year, these funds have fallen not more than 21 per cent on an average.

Says Manish Bhandari, fund manager, ING Dividend Yield Fund, "The foremost strategy that has worked for dividend yield funds is selecting stock and constructing portfolio of stocks having dividend yield of more than Nifty, and being true to the mandate of investing in dividend yield stocks only."

Of all the six funds having exposure to dividend yield stocks, ING Dividend Yield Fund has emerged as the less-destroyed fund in terms of returns, with only 15 per cent fall in its returns for one-year period.

Adds Bhandari of ING Dividend Yield Fund, "Our value-investing approach in stock selection has helped us to deliver superior returns, which have beaten the index by more than 10% in one-year time frame. We wouldn't invest in momentum or high P/E stocks."

An examination of the composition of these funds indicates that most dividend yield funds have maximum exposure to oil and gas, public sector banks, pharmaceuticals and fertilizers sectors.

It must be noted that at the time when these funds were launched the government had asked profit-making public sector undertakings to go for higher dividend distribution or bonus issues. And these companies are cash rich and distribute high dividends.

Also, the cherry-picking done by fund managers in terms of defensive sector like pharmaceuticals also point to the fact that fund mangers resorted to the traditional route (mostly used by diversified funds) to protecting capital destruction by resorting to defensive sectors, which don't much bear the brunt of a bear market.

These two factors have worked for dividend yield funds.

Another interesting fact that has worked for these funds is the dividend yield factor. Most funds, on average, have delivered yield of 2.79 more than the yield generated by the Sensex(1.42) and the Nifty (1.48) in one-year period.
 
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