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After a near one-way rally for much of this year, markets are facing a bit of resistive phase as key indices have started to correct from their highs. Expensive valuations in equities continue to be a point of concern for investors – new and old.
With geopolitical tensions, US elections and crude prices weighing on sentiments, it may be a good time to take the safer option of dividend yield investing.
Companies usually become reasonably consistent and high dividend yielding once they become mature, and these are available across market caps though they are more prevalent in the large cap space. With stable cashflows and sound return metrics (RoE, RoCE etc.), such firms provide reasonable safety as potential safe havens in volatile times, though they could underperform in momentum driven rallies.
But as a long-term strategy, dividend yield can still give steady returns with perhaps a lower level of volatility in the portfolio.
In this regard, investors can consider the Aditya Birla Sun Life Dividend Yield Equity Fund (ABSL Dividend Yield) for long-term goals that are 7-10 years away. The fund has done quite well over the long term. It has consistently managed to beat the benchmark and deliver above-average returns.
Investors can use the SIP route for taking exposure to the fund to ride out volatility and average costs.
Steady performer
Aditya Birla Sun Life Dividend Yield fund has been on revival mode over the past five-seven years after the takeover of the scheme from ING Mutual in 2014. The scheme has delivered steady and above-average returns in this period.
On a point-to-point basis over one-, three-, five- and seven-year periods, the fund has outperformed its benchmark Nifty 500 TRI in the range of a few basis points to 5-18 percentage points over the medium term.
On a rolling three-year basis over October 2017 to October 2024, ABSL Dividend Yield has delivered an average return of 18.8 per cent annually, while the Nifty 500 TRI has managed 17.8 per cent annually over the same period.
When the above seven-year window is taken and rolling three-year returns are considered, the fund has beaten the Nifty 500 TRI well nearly 63 per cent of the time.
Again, over three-year rolling periods in the last seven years, ABSL Dividend Yield fund has delivered more than 12 per cent returns over 80 per cent of the times and in excess of 15 per cent returns nearly 73 per cent of the time.
If SIP returns (XIRR) are considered over the past 10 years, the fund has given a robust 19.9 per cent in this timeframe. An SIP in the Nifty 500 TRI would have managed 18.4 per cent over the same timeframe.
These data points clearly indicate that the fund has been a fairly consistent performer in the category over the past several years.
The fund has an upside capture ratio of 111.4, indicating that its NAV rises much more than the benchmark Nifty 500 TRI during rallies. But more importantly, its downside capture ratio is only 76.7, suggesting that the fund’s NAV falls a lot less than the benchmark during corrections. This is based on data from 2021-2024. A score of 100 indicates that a fund performs in line with its benchmark.
Multi-cap approach
ABSL Dividend Yield fund takes a multi-cap approach to constructing its portfolio. There have been periods in the past few years when the proportion of small caps in the portfolio has exceeded 30 per cent, which has helped returns. However, large caps are the largest components across timeframes for the scheme.
In the latest August 2024 portfolio, the fund had 56.4 per cent in large caps, 25.4 per cent in small caps and 10.6 per cent in midcaps.
In terms of sector preferences, ABSL Dividend Yield has always favoured Information Technology (IT) as the top segment. Diversified FMCG was among the top few sectors held in the previous years, but exposure has been trimmed in the last one year. Power, banks, financial services companies and capital markets figure prominently.
For most sectors, the fund mostly chooses the top few players in the respective spaces for investments.
ABSL Dividend Yield fund usually remains invested almost fully. It holds only about 2-3 per cent of its portfolio in cash and net current assets across timeframes.
Investors can consider taking exposure to the fund as a part of their satellite portfolio via the SIP route with a time horizon of 7-10 years.
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