Emerging and developing Asia is the only region of the world forecast for greater than 5% GDP growth this year while global real GDP is estimated at just 2.8% according to the International Monetary Fund. The KraneShares S&P Pan Asia Dividend Aristocrats Index ETF (KDIV ) is positioned to capture the recovery and growth in Pan Asian countries in a strategy that offers diversified global exposure while also offering a defensive stance against market volatility through dividend aristocrat companies.
“For non-U.S. equity exposure, one of the things that I think has kept investors on the sidelines historically is the volatility,” explained Brendan Ahern, CIO of KraneShares, in an interview alongside Rupert Watts, senior director of strategy indices at S&P Dow Jones Indices, recorded at Exchange earlier this year.
“What the dividend strategies do is allows investors to get exposure to non-U.S. equities but with the enhancement of dampening some of that volatility via the dividend stream,” Ahern said.
KDIV tracks companies that have grown their dividends sustainably over an extended time horizon in the Pan-Asia region that includes China, Australia, Japan, and more. The fund seeks to provide investment results that correspond to the performance of the S&P Pan Asia Dividend Aristocrats Index and is the first U.S.-listed ETF to apply the S&P Dividend Aristocrats strategy to the Pan-Asia region.
Applying the Dividend Aristocrat Strategy to Pan-Asian Countries
“The S&P Dividend Aristocrats are one of our most well-known dividend families and firmly set within that dividend growth category of dividend strategies,” explained Watts. The S&P Pan Asia Dividend Aristocrats Index seeks to balance both the sustainability of dividends as well as high-yield opportunities.
Companies included in the index must be a part of the S&P Pan Asia BMI Index, have increased dividends for seven consecutive years, and have positive earnings, with a non-negative dividend payout ratio. Companies that have a yield above 10% are excluded from the index to avoid “dividend traps” according to Watts.
“The top 100 companies are then selected based off of the indicated annual dividend yields and then weighted proportional to that yield,” Watts explained. This gives the index an overall tilt towards quality that can provide outperformance opportunities when markets are underperforming or stressed.
The index has annualized returns of roughly 9.5% since December 2001, 2% higher than the underlying benchmark over the same period, while also providing volatility reduction.
“In terms of the yield, since 2001 it’s averaged about three and a half percent compared to the benchmark which is about two and a half percent. That was even more pronounced in 2022: it had a yield of about 4.4% versus the benchmark of 3%,” Watts said.
KDIV has an expense ratio of 0.69%.
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