Crude oil breaks above 110, looking for low-volatility assets? Since March, the dividend index has outperformed gold by over 13%!

Ask AI · How does a declining interest rate affect dividend asset valuation?

Due to the worsening situation of the Iran war, overnight New York crude oil futures surged past $110 during trading, putting various global assets under pressure again. As of April 2, since March, gold has fallen over 13%, the US Dow Jones Industrial Average and the A-shares Shanghai-Shenzhen 300 Index have declined about 5%. Amidst sharp global asset volatility, dividend assets have remained resilient—The Zhongzheng Dividend Low Volatility Index tracked by Tianhong’s Dividend Low Vol ETF has still maintained positive returns since March.

Looking at a longer cycle, dividend assets still perform well. Fund periodic reports show that, by the end of 2025, Tianhong Dividend Low Vol ETF Connect Fund has achieved positive annual returns every year since its establishment in 2019, with a total return of up to 76%.

Is a big drop good for dividends? Actually, many investors face a common confusion: they are familiar with dividend assets, but often only realize their under-allocation when dividends perform well. Yesterday, Tianhong Fund’s official podcast “Human Money Talk” invited Sand Chuan, the manager of Tianhong Dividend Low Vol ETF, to deeply analyze the investment logic and allocation strategies of dividend assets, aiming to help investors recognize dividend value and master allocation methods.

Dividend Asset Return Breakdown: Dual Contribution of Dividends and Stock Price

The underlying assets of dividend assets are mostly industry leaders in water and electricity, banking, coal, and other stable, cash-flow-rich sectors. These companies have passed the large-scale capital investment phase, with limited growth potential but stable profits and strong dividend willingness. Why have these assets shown excess returns over long cycles in the past?

Sand Chuan breaks down the sources of dividend asset returns into two parts: capital gains from stock price fluctuations and dividend income.

From a valuation model perspective, the value of dividend assets is mainly influenced by the denominator— the risk-free interest rate. When interest rates decline, the discounted value of dividend assets increases, and stock prices tend to perform better. The rise of dividend assets in recent years is not only due to relatively stable dividend income but also driven by the continuous decline in domestic deposit rates, which boosts stock prices.

Sand Chuan suggests that investing in dividend assets should focus on the difference between the dividend yield and the risk-free rate (i.e., risk premium). When this difference is at a historical high, the allocation value of dividend assets is more prominent. Currently, this difference remains around 3%, although it has narrowed compared to previous years, it still falls within an investable range.

Two Major Supports: Insurance Funds and Policy Promotion

Dividend assets perform steadily amid market fluctuations, partly because the underlying companies are stable and valuations are steady, and partly due to support from liquidity and policy measures. Sand Chuan provides a detailed analysis of funds favoring dividend asset allocation.

Insurance funds are the largest allocation force. Because of the rigid payout pressures on their liabilities, their asset side needs long-term, stable cash flow assets, which dividend assets precisely match. According to Sand Chuan, about 1 trillion yuan of incremental insurance funds enter the market each year, with 300 to 500 billion flowing into dividend assets, becoming an important force supporting dividend assets.

Additionally, policies are continuously promoting a dividend culture. Sand Chuan points out that A-shares are shifting from a “financing market” to an “investment market.” Regulators encourage listed companies to increase dividend payout ratios to reward investors.

Underlying Assets Are Still Stocks, Not Fixed Income

It’s worth noting that Sand Chuan specifically reminds investors to avoid a misconception: treating dividends as a substitute for fixed income. Some investors calculate: current government bond yields below 2%, dividend yields around 4%, so why not buy all bonds and get higher returns from dividends?

Sand Chuan states that these two asset classes have completely different risks. Although dividend assets feature stable dividends, they are fundamentally stock assets, and investors must recognize their volatility and allocate positions according to their risk tolerance.

Wind data shows that, as of April 2, the maximum drawdown of the CSI Dividend Low Volatility 100 Index over the past 10 years was 29%, while the maximum drawdown of the CSI 300 during the same period reached 46%. Although the dividend index performed better, it still exhibits some volatility.

“Dividends are not a substitute for fixed income,” Sand Chuan emphasizes, “they are two completely different asset types—long-term dividend pursuit requires accepting stock price fluctuations first.”

Investment Strategy: Allocation Thinking Over Trading Thinking

Regarding how to invest in dividend assets, Sand Chuan offers several suggestions:

First, focus on allocation thinking rather than trading thinking. Allocation aims for long-term dividend income, with stock price fluctuations viewed as additional rewards; trading aims to profit from short-term swings, which can be easily shaken out by volatility. During market downturns, dividends often outperform, but short-term trading to capture these is still challenging.

Second, build positions gradually and avoid heavy one-time allocations. Although dividend assets tend to be less volatile, they can still decline. Dollar-cost averaging or phased purchases can smooth risks and reduce timing pressure.

Third, stick to long-term investing. The underlying companies of dividend assets have stable competitive landscapes, and judging long-term trends is not difficult; the challenge lies in execution—whether one can hold through account losses. Investors should plan cash flows in advance to avoid forced selling due to short-term fluctuations.

Fourth, don’t over-diversify dividend investments. There are many dividend indices, including low-volatility, state-owned enterprise dividends, Hong Kong stocks, free cash flow, etc. Sand Chuan believes that the fundamental return sources of these indices are all dividend factors. Although their performance varies across years, the long-term differences are limited. He recommends selecting 2 to 3 funds rather than over-diversifying.

Additionally, some investors pay attention to dividend fund payout frequency. Sand Chuan says this depends on cash flow needs. For those needing cash, monthly or quarterly dividend products are suitable; for those not in urgent need, dividend reinvestment options can be chosen to enjoy compound interest.

It’s worth noting that Tianhong Fund has laid out many related funds for investors interested in dividend assets.

Is insurance fund allocation to dividend assets a “buy and hold” strategy? Can the future of the Dividend Low Vol 100 Index Fund replicate the positive returns from 2019 to 2025? For more questions about dividend investing, you can follow Tianhong Fund’s official podcast “Human Money Talk,” where this episode is now available.

Source: Tianhong Fund

Risk Reminder: The views are for reference only and do not constitute investment advice. The market has risks; investments should be cautious. Index funds may have tracking errors. Past performance does not guarantee future results. The performance of other funds managed by the fund manager or fund managers does not guarantee the performance of this fund. Investors should carefully read the fund prospectus and fund contract before purchasing, consider their own investment objectives, time horizon, and risk tolerance, and make rational decisions based on understanding the product details and sales suitability opinions. Funds mainly investing in overseas securities markets face similar market volatility risks as domestic funds, as well as currency risk and specific overseas market risks.