In today's ever-evolving capital markets, investors navigate choppy waters much like sailors steering their ships through a turbulent sea, continuously searching for a reliable “Noah's Ark” that offers a comfortable experience during uncertain timesAmidst fluctuating stock markets and cautious investor sentiment, dividend assets have become increasingly attractive due to their dual potential for growth and protectionThe recent market dynamics have led to a prevailing preference for these stable investment options.

Historically, dividend assets were deemed insufficiently "exciting" by certain investors who preferred high growth and rapid returnsHowever, as the global economic landscape undergoes profound adjustments and mounting market uncertainties emerge, the significance of valuations and margins of safety in investment decisions has surgedThis shift has catalyzed a notable change in investor mentality, transitioning from a future-oriented mindset emphasizing dreams and valuations to a present-focused perspective that values tangible cash flows.

Given this backdrop, the Dongfanghong CSI Eastern Red Dividend Low Volatility Index Fund (Class A: 012708, Class C: 012709) has made notable stridesImpressively, it ranked first among similar funds in performance for 2024 according to the Galaxy Securities Fund Research Center.

Dividends have emerged as the backbone of investment during turbulent market phases.

Since the core asset market began experiencing downturns in 2021, dividend assets increasingly became a favored choiceTheir performance diverged from the prevailing trends of other mainstream indices, standing out as a rare glimmer of positivity amidst the market oscillationsIn 2024, these dividend assets maintained their robust posture, with the Dongfanghong Dividend Low Volatility Total Return Index demonstrating a significant annual increase of 34.97%, outpacing the Hu and Shen 300 Total Return Index by a striking 16.73 percentage points.

The intrinsic appeal of dividend assets lies in their provision of high dividend yields, reflecting investor preference for “reliable high dividends” during periods of market turbulence and lackluster corporate profit growth

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Typically, these assets possess lower valuations, limiting further contraction potential.

Investor enthusiasm for dividend assets can be traced back to the stable high-dividend policies of robust listed companies, which yield consistent returns for stakeholdersHistorically, the dividend strategy has proven effectiveThe dividend yield, calculated as the ratio of dividends to stock prices, indicates that high-yield stocks typically exhibit two defining traits: substantial dividends and low valuations.

The Dongfanghong CSI Eastern Red Dividend Low Volatility Index Fund meticulously tracks the Dongfanghong Dividend Low Volatility Index (931446). The index is curated through a unique process that values companies' profitability—specifically, the average of their non-recurring ROE (Return on Equity) over the last three years—and their profitability stability, gauged by the standard deviation of their non-recurring ROE during the same periodBy focusing on these factors, this methodology minimizes the likelihood of falling into “high dividend traps.” Through an examination of expected dividend yield and the low volatility factor, the index zeroes in on companies that are capable and willing to enrich shareholders, and whose share prices are relatively stableThis distinguishes the index from other low-volatility dividend indices.

As we remain in a transitional market cycle, dividend assets characterized by steady earnings and copious cash flows may represent an ideal blend of offensive and defensive investment strategies.

From an active management perspective, these dividend strategies serve as a core engine capable of weathering market fluctuations.

The success of the Dongfanghong CSI Eastern Red Dividend Low Volatility Index Fund (Class A: 012708) can be attributed, in part, to Dongfanghong Asset Management's relentless commitment to quantitative researchSince initiating their quantitative ventures in 2011, the firm has developed a pyramid-shaped public quantitative product line, with customized Smart Beta index products as its foundation, index enhancement products in the middle tier, and active quantitative products at the top.

According to Xu Xijia, General Manager of Dongfanghong's Public Index and Multi-Strategy Department, the development of quantitative products is akin to cooking—long-term effective factors act as basic ingredients like eggs, flour, vegetables, and meat

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Just as dishes consist of various components, the relationship between factors and stocks is analogousXu Xijia, merging an active investment mentality with quantitative management expertise, demonstrates how specific strategies, index constructions, and systematic frameworks can be executed in a manner that minimizes the impact of market sentiment.

Xu emphasizes that for investors to accumulate long-term profits, strategies must be built around robust, consistently effective factors. “Quality, dividends, value, and growth factors tend to cover a complete economic cycle, ensuring that at any point in the cycle, 1 to 2 factors will likely generate absolute and relative return opportunities.” For instance, the underlying reasoning behind the Dongfanghong Dividend Low Volatility Index leans heavily on two long-term effective factors: dividends and low volatility, which exhibit low correlationTogether, they yield a synergistic effect that results in growth that exceeds expectations and adapts well to the current market environment, while also displaying characteristics akin to a blend of long-duration bonds and stock index options.

One noteworthy aspect of Xu's team is the customization in their Smart Beta index series, wherein every index is built around a core factor that aims for stable exposure over the investment periodThis focus on core factors is complemented by significant effort to minimize interference from other risk factors, ensuring that the core factors can yield robust returns with resilience against outside disruptions.

As the year closes and another begins, opportunities for dividend-driven growth remain prevalent.

The rise of dividend investing can be naturally linked to China’s economic growth, industry changes, and the maturity stages of listed companies—not merely a fleeting trendIn light of falling long-term interest rates alongside the onset of a new year, the demand for dividend assets has surged.

The year-end and New Year period represent a crucial window for institutional investors to rebalance their portfolios, which is anticipated to herald seasonal funding surges for low-volatility dividend assets

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Concurrently, as China's economy transitions towards higher-quality development, an increasing number of A-share listed companies are reaching their maturity phases and facing more stringent competition in a saturated marketRaising dividend ratios will become a pivotal mechanism for firms to maintain their ROE, revealing a noticeable trend toward increased “patience” in corporate strategies.

In parallel, regulatory efforts are bolstering dividend market dynamics, instilling robust incentives for listed companiesThe newly articulated “Nine National Policies” of 2024 aim to enhance cash dividend supervision, thereby fortifying a normalized dividend mechanism for public firmsFurthermore, a system-wide meeting scheduled for January 13, 2025, will mandate compliance with guidelines on market capitalization management, including strict enforcement of dividend distributions and share repurchase activitiesUnder this regulatory push, the market capitalization management of listed companies, particularly state-owned entities, is significantly fortifiedAccording to Wind data, as of December 31, 2024, the Dongfanghong Dividend Low Volatility Index included a substantial proportion of central state-owned enterprises, with 26 and 54 entities from central and local governments, respectively.

With market interest rates continuing to decline, the inherent advantage of dividend assets remains palpableOver the past year, the Dongfanghong Dividend Low Volatility Index posted a commendable dividend yield of 5.21%, indicating solid cost-performance ratiosAdditionally, in terms of liquidity, the stable attributes of the dividend sector resonate well with the preferences of insurance capital, which has progressively increased its allocation towards equity assets in recent yearsDuring the concentrated period of premium collection at year-end and New Year, low-volatility dividend assets are poised to attract further investment from the insurance sector.

In the intricate and fluctuating domestic and international environment at year-end, the importance of stable dividend assets cannot be overstated

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