Asia dividend-paying equity funds are drawing billions of dollars that could have gone into other equity funds in the region, as investors seek out assets that yield more than bonds but are less risky than direct stock purchases.
In January-to-May, dividend funds accounted for three of the top five Asia equity funds ex-Japan with the most fund inflows, according to data from Lipper, a Thomson Reuters unit. The OkasanAM Asia Oceania Good Dividend Growth fund pulled in the most capital. Inflows jumped four-fold from a year earlier to around $2.1 billion, compared with outflows from the region’s biggest equity funds such as the Templeton Asian Growth Fund and the Aberdeen Global Asia Pacific Equity Fund.
China, India, South Korea and Australia have all cut interest rates in recent months, spurring capital flows into higher-yielding investments including dividend equity funds. Similarly in the United States and Europe, dividend-themed funds have seen strong inflows due to low interest rates. “Clearly, low interest rates have been a driver of the increased flows into equity dividend funds and the higher flows will continue at least for the next two, three years,” said Chuck Ng, CEO of Value Partners Asset Management Singapore.
Other factors contributing to the growing appetite for Asian dividend funds are new investment opportunities in markets such as South Korea. A new law in South Korea taxing excess corporate cash is compelling traditionally tight-fisted companies to pay more dividends, making them attractive to income-seeking investors.
The Value Partners High-Dividend Stocks Fund, No. 4 on the top-five list, saw an inflow of $704 million in the first five months versus an outflow of $105 million a year earlier. Of its $4.06 billion portfolio, 16 percent was invested in Korean stocks, with Amorepacific and Samsung Electronics among its top holdings. The portfolio’s dividend yield was at 3.8 percent at the end of May. In contrast, the average dividend yield for large- and mid-cap stocks in the Asia-Pacific region is 2.4 percent.