Fund in this article
by Christoph Platt, Euro am Sonntag
S.o some German corporations will make their shareholders happy again this year with a rain of money. But there are also interesting stocks abroad that shine with high payouts. With the help of funds that concentrate on high-dividend stocks, these stocks can be easily brought into the portfolio.
Given the persistently low interest rates, portfolios of this type have grown in popularity significantly in recent years. Many investors are desperately looking for regular income. This need can be met a little with dividend funds.
The products are considered a relatively defensive equity investment. They often manage to develop more stably than the broad market in weak stock market phases. Conversely, they regularly run after him in a bull market.
In the corona crash a year ago, however, many products were unable to meet investors’ expectations. This shows the comparison of the group of dividend funds with their normal counterparts. Globally investing portfolios with no dividend focus lost an average of 24.4 percent of their value between the beginning of January and the low of the stock markets around March 20 in 2020. Dividend funds were hit harder with an average minus of 25.7 percent. The discrepancy was even more pronounced in Europe: Here dividend funds gave almost three percentage points more than standard portfolios.
The background: In view of the expected economic downturn, many companies cut their dividends or canceled them altogether – a severe blow for funds that have set this focus. “The impact was severe and bigger than many experts had predicted,” says Stephan Schrödl, an analyst at FondsConsult Research.
No miracles happened in the subsequent upswing either. In the past twelve months, dividend funds achieved on average lower growth than comparable standard portfolios. However, this corresponds to the expectation that they will lag the broad market slightly during a bull market.
Discipline and consistency
Investors shouldn’t overestimate the relative weakness of dividend funds during the spring 2020 crash. Because it is based on an extreme event. “Dividend funds are and will remain a defensive core investment,” says Schrödl. The analyst points to the disciplining effect of dividends. “Companies that pay dividends tend to have healthy balance sheets, a lot of equity and generate stable cash flows,” he explains. “And they show that continuity is important to them by pouring out regularly.” That makes the respective portfolios relatively solid.
When looking for companies with high dividends, the funds have to face a special challenge. The branches of the economy, in which above-average dividends can often be found, are not exactly among the growth miracles. For example, indices that contain stocks with high dividend yields often have a heavy weight on financials or utilities. The booming technology sector, on the other hand, is underrepresented.
Many actively managed funds therefore do not only look at the dividend yield in order to identify suitable stocks for their portfolio. More and more people are looking to buy companies that are likely to be able to increase their dividends – even if, in absolute terms, it is not particularly high. In this way, stocks from sectors that are considered less typical of dividends also get into the portfolio.
From this perspective, dividend-focused ETFs have a structural disadvantage. They mostly rely on corporations with high dividend yields that have paid out stable in the past. “Their approach is backward, and there are some business models among traditional dividend companies where looking back can be deceptive,” says Schrödl. “Right now the opportunities for active managers are great,” the analyst is convinced.
From the around 170 dividend funds available in Germany, the editors have selected three that they consider particularly recommendable (see investor information). In the selection, the performance over five years, the volatility and the costs played a decisive role. The € uro FondsNote, which describes the risk-return profile of the past four years, was also taken into account.
As with portfolios without specialization, dividend funds are offered for different regions. Investors have the greatest choice in products that invest worldwide. Around 60 are available. The number of portfolios for European dividend stars is slightly lower. Products with a focus on North America, Asia, emerging markets and Germany are also available.
To ensure broad diversification, € uro selected a global, a European and an Asian dividend fund on Sunday. All three products have proven in recent years that their concepts are very successful. With them, investors can also endure the rain of money in the future.
BL Equities Dividend is the only actively managed global dividend fund that is currently rated at € uro fund grade 1. Under the management of Jérémie Fastnacht, the product has been convincing for years with solid growth and low volatility. Carnival is looking for high-quality companies with good growth prospects. Frequent changes are alien to him: the stocks stay in the portfolio for an average of just over five years. With 33 titles, it’s very focused.
Siemens Qualität & Dividende Europa is one of the highest-yielding portfolios for European stocks with high distributions over a five-year period. He invests in companies that can expect continuous and, ideally, even increasing dividends. An analysis of data beyond the usual financial indicators (e.g. innovative strength or brand strength) should protect against future dividend cuts. The unusually low fees for an actively managed fund are remarkable.
With the Fidelity Asia Pacific Dividend, investors open up a region that stands for high growth. Only a few dividend funds are available in Germany with this focus. The product has invested almost 60 percent of its assets (halfway evenly) in Taiwan, China and Hong Kong. This is followed by shares from Australia and India, each with shares of eight to nine percent. Technology is currently the most weighted sector among the sectors.
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