In recent years, especially amidst the market turbulence, a promising investment strategy has garnered momentum, that is the dividend strategyThis strategy has emerged as a focal point of discussion among investors and analysts alike, even being labeled as the main theme of market action for the yearThe significance of dividend-themed funds has become apparent, with nearly 90% of such funds reporting positive returns thus far, which speaks volumes to the funds flowing consistently into related productsSimultaneously, public fund institutions are seizing the opportunity and are intensifying their involvement, evidenced by the 44 newly launched dividend-themed products in the past year alone—a stark uptick compared to previous figures.

Industry experts attribute this shift to an underlying sentiment of market defensiveness, drawing connections to a coherent industrial cycle logic that supports the strength of dividends

Despite concerns regarding crowding and stock performance interplays, the fundamental rationale behind the dividend strategy remains unalteredCaution, however, is advised against potential pitfalls such as the "dividend yield trap" and "valuation trap."

Observations of dividend-themed products have shown a remarkable trend this yearAlthough the A-share market has persistently fluctuated, the preference for dividend-investment styles has become evidentData collected up to May 23 reveals that indices like the Low Volatility Dividend and the China Securities Dividend index have appreciated by 17.86% and 14.2%, respectively, contrasting significantly with the Shanghai Composite Index’s mere 4.75% gain during the same timeframe, and the downturn in the ChiNext Index by over 2%.

A closer examination of performance data shows that products oriented towards dividends have been impressively performing, with almost 90% showing positive returns for the year

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A report from Wind highlighted that of the 164 fund products featuring “dividend” or “yield” in their titles, 147 recorded positive returns for the year, representing an impressive 89.63% of the sample size.

Among the standout performers, the “Yongying Dividend Preferred A” fund led with an exceptional return of 23.92%. Other noteworthy funds, such as the “Zhongtai Dividend Value One-Year Holding Mixed Launch” and “China Europe Dividend Enjoyment Flexible Allocation Mixed A,” have reported year-to-date returns exceeding 20%. On the other end of the spectrum, the product "Pu-Yin Anshun Dividend Select Mixed A" has suffered losses exceeding 12%, showing a staggering deviation of over 35 percentage points compared to top-performing funds.

In addition to these performance indicators, there has been a robust inflow of capital into dividend-themed funds

By May 22, over 12.7 billion RMB had actively flowed into dividend-related index products this yearNotably, the "Huatai-PineBridge Low Volatility Dividend ETF" alone attracted an impressive 4.513 billion RMB in net inflows, while several other ETFs such as "Tianhong China Securities Low Volatility 100 ETF" and "Invesco Great Wall China Securities Low Volatility 100 ETF" each welcomed over 1.2 billion RMB in investments.

Furthermore, the active management of dividend-focused products is also witnessing growing interestThe first-quarter reports indicated that among 78 actively managed equity funds, over 40% experienced an increase in scaleSpecific funds, such as "China Europe Dividend Enjoyment," gained 1.247 billion RMB within a single quarter, while others like "Qianhai Kairun Dividend 100 Strong," "Yongying Dividend Preferred A," "Guolian High Dividend Selection A," and "Changsheng Quantitative Dividend Strategy A" all saw their scales grow by over 200 million RMB.

On the flip side, the increasing spotlight on dividend strategies is prompting public fund institutions to remain active

According to Wind data, as of May 23, a total of 44 newly established funds featuring the term "dividend" in their titles have hit the market within the past year, highlighting a significant leap from just five in the preceding period—almost an eight-fold increase.

What distinguishes this market surge?

Since August of last year, there has been a noteworthy drop in market risk appetite, creating an attractive environment for high-dividend yielding and resilient dividend assetsRegulatory bodies have also been actively encouraging listed companies to enhance both the quantity and quality of their dividends, which has subsequently raised the market's interest in dividend strategies.

In a market characterized by competition over existing assets, capital consistently shifts among themesThe newfound strength of the dividend-related trend has sparked enthusiasm among investors, raising interest in the sector and enhancing trading volume

But what are the distinctive features of this current dividend-focused market surge?

According to Han Yiling, Deputy Director of the Quantitative Investment Department at CITIC Prudential Fund, the first notable aspect is the heightened emotional engagement of investorsThe proliferation of articles and short videos promoting dividend products has created a buzz that has enkindled investor interestAnother contributor is the robust support from policies that have helped establish “dividend investing” as an alternative pricing logic in the marketCoupled with these factors, this latest surge in dividend activity has been swift and remarkable, without exceeding expectations.

"The short-term rise in enthusiasm for dividend investing is palpableTypically, an overheated market sentiment leads to swift adjustments after price escalations, yet dividend assets might demonstrate distinct characteristics in this regard

Since dividend style tends to be a reversal strategy—where higher stock prices correlate with lower dividend yields—the trading enthusiasm may be somewhat diluted in terms of portfolio reallocations," Han explains.

Further strengthening this insight, Liu Yong, manager of the “China Europe Jinquan Mixed Fund,” indicated that early in the year, institutional investors generally lowered their return expectations within the equity market, subsequently drawing incremental capital towards dividend stocksAs seen, industries and stocks with remarkably high dividend yields—like banking and coal mining—saw their valuations uplifted, thus driving the initial wave of the dividend stock rally this year.

"By May, with the implementation of relaxed policies in the real estate sector, there has been an increased market expectation of a recovery in the real estate fundamentals

Consequently, dividend stock sectors such as real estate developers, building materials, and steel—which form part of the real estate chain—are experiencing a rebound, propelling a renewed rise in dividend indices," Liu elucidates.

Additionally, Liu asserts that within a weakening market or an environment characterized by declining 10-year treasury yields, dividend strategies possess a strong allure to capital-seeking absolute returnsIn an undulation-prone market lacking a clear thematic direction, the defensive attributes of dividend strategies gain heightened relevance, thereby amplifying their investment appeal.

Will the dividend strategy endure?

At present, several institutions are vocally optimistic regarding dividend strategies, considering them possibly the primary investment theme of the yearAt this juncture, investors are understandably concerned about whether the momentum in the dividend market has peaked

Moreover, will the favorable dividend style continue to hold its ground?

"Despite heightened concerns about crowding and interplays among existing assets, the fundamental logic supporting dividend strategies remains unchanged from a funding perspective and industrial logicTherefore, we can expect the dividend strategy to remain a central investment theme throughout the year," Liu explains, reinforcing the structural inclination toward dividends.

Moreover, the ongoing encouragement from regulators aimed at amplifying corporate dividend initiatives—championing multiple dividends in a single year—augments the potential for smoothing investment returns for insurance accounts, thus enhancing investment willingness from these institutionsMeanwhile, from the standpoint of existing capital, actively managed equity funds are likely to revert toward performance benchmarks and mitigate divergence risks, further promoting the migration of funds from overvalued growth sectors into dividend-oriented segments over time.

"The sustainability of dividend strategies essentially hinges on the restoration of foundational economic conditions in China, as well as improvements in risk-free interest rates," Liu interprets

Evaluating both dimensions suggests that the favor towards dividend strategies is still far from concluding, even indicating that they may form a cornerstone of investment discussions for the coming years.

"The escalating demand from investors for dividend-centric allocations serves as the key driver behind the sustained interest in dividend assetsConsequently, the future shift in market styles heavily relies on the evolving perceptions and needs of investors," asserts Han Yiling, envisioning that dividends now hold a more prominent role in the changing market landscapeAs the economy enters a phase of high-quality development, dividend assets are transforming from mere defensive strategies during market fluctuations into long-term allocation ideologies.

"Dividends themselves may not inherently present the concept of excess returns but rather represent a form of BETAThus, we approach dividend styles as avenues to secure stable dividends, predicting sustained interest in the future; however, we cannot conclusively state that this style will outperform others," remarks Zhang Xiaofeng, an aspiring fund manager with Xingzheng Global Dividend Mixed Fund.

He expresses that the priority regarding dividend strategies should be to avoid value traps and remain vigilant about hollow dividends, high yields that arise from price declines, cyclical high yields, and the sustainability of high-leverage, high-dividend companies.