A dividend-yield strategy involves favouring stocks that offer good dividends, making for relatively lower risk. Such a strategy may be of good use in the current choppy markets.

Among the dividend yield funds on tap, BNP Paribas Dividend Yield has ranked at the top of the charts over three- and five-year periods.

Benchmarked against the CNX 200 index (from April this year; the Sensex was the earlier benchmark), the fund has outdone the index about 85 per cent of the time on an annual rolling return basis over the past five years. Large-cap stocks form at least 60 per cent of the portfolio. The cut-off for dividend yields, usually that of the Nifty or CNX 500 index for most dividend yield funds, is a lower 0.5 times for BNP Paribas Dividend Yield fund. This throws open a far wider field of stocks. Investors with a moderate risk appetite can invest in the fund as a diversifier.

Staying invested

In the one-, three-, and five-year periods, the fund has beaten the CNX 200 index by a margin of 5 to 11 percentage points.

Its good consistency record has seen it perform well across market cycles as well in the choppy markets that were predominant in 2013 until the rally began in August. The Dividend Yield fund lost around 7 per cent against the benchmark’s 12 per cent. The fund’s strategy sees it stay invested in equities at over 90 per cent of the portfolio most of the time, barring the 2008-09 period. While this is a high level , it participates well when markets eventually rally.

The fund’s deft switching between sectors also helps. In its latest portfolio, for instance, software is among the top three sectors. This segment was first built up in 2013 and then pruned as cyclical stocks came to the fore in the market rally. In cement too, the fund has gradually added to holdings over the past year-and-a-half, having pruned stake in 2012 after cement stocks rallied.

Logistics is another sector where the fund made a timely call, picking up stake from May this year. Container Corp and Gateway Distriparks have both had a dream run in the past few months.

The fund has also refrained from leaping onto the cyclical bandwagon blindly, staying away from troubled sectors.

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