Stock Selection Rules Drive High-Yield ETF Choices
SingTao · 1 SOURCESabout 3 hours ago2 MIN
Summary
A Sing Tao column by Lee Sing-yeung says investors in high-yield products should not assume that a higher dividend yield or more frequent payouts are automatically better. He says the key test is whether an ETF has a disciplined screening framework and risk controls, citing two ChinaAMC Hong Kong high-dividend ETFs he recently studied and bought.
Key Points
- Lee said past performance may not predict future returns, and warned that very high yields, overly frequent distributions, or payouts funded from capital can all be drawbacks for income investors.
- He identified ChinaAMC’s Hong Kong high-dividend ETFs 3590 and 3592 as having identical holdings, with 3590 as the distributing class and 3592 as the accumulating class.
- To qualify, companies must have paid dividends in at least two of the past three years, while firms with a three-year average payout ratio above 150% are excluded.
- The ETFs also remove the bottom 10% of companies on an earnings-quality score based on the average and standard deviation of return on equity over the past eight quarters.
- They further exclude the 10% most volatile stocks by five-year weekly return volatility, while portfolio weighting also considers expected dividend yield and five-year share-price volatility.
- Lee wrote that both ETFs were newly listed, traded at about HK$10, and had a board lot of 100 units, implying an entry cost of about HK$1,000. He said the funds had net assets of about HK$400 million, with average daily turnover of about HK$1.3 million for 3590, while 3592 was less actively traded.
- He added that the management fee is 0.65%, which he described as broadly in line with comparable products. Although he bought both funds, he said he prefers 3592 because its accumulating structure automatically reinvests dividends and can better capture compounding over the long term.
Why It Matters
For Hong Kong retail investors, the column points to a practical distinction between chasing headline income and assessing how an ETF prevents companies from using special dividends or debt-funded payouts to qualify.
An accumulating class with lower trading activity may still appeal to long-term investors if they value automatic reinvestment and compounding over immediate cash flow.