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Striking the Low-cost, High-yield Sweet Spot


STRIKING THE LOW-COST, HIGH-YIELD SWEET SPOT

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Yan Pu
Head of Portfolio Review, Asia
Vanguard Investments Hong Kong Limited

A s the low interest rate environment lingers, more capital is entering income-oriented instruments to counter meager deposit rates. A fitting tool for this purpose is the dividend-paying ETF, which aims to generate a stable stream of income while minimizing costs. This trend plays to the strength of Vanguard – winner of this year’s Outstanding Achiever in the High Dividend ETF category – which is recognized for its edge in manufacturing low-cost products. BENCHMARK sat down with Yan Pu, Head of Portfolio Review in Asia, to talk about income investing and ETF market development.

BENCHMARK (BM): Vanguard’s expertise in delivering income at a low cost has once again won applauds. Besides your below market-average expense ratio, what are the other factors behind the success of your ETF products?
Yan Pu (YP): Thank you. We are grateful for the honor. As a pioneer in indexing for more than four decades, Vanguard draws on its deep experience and strong systematic selection, weighting, and rebalancing capabilities to manage its ETFs. As a result, our products were able to track the benchmark tightly, which is one of the key characteristics that define “successful” passive products.
In addition to lower-than-peers expense ratios, our high dividend ETFs feature strong liquidity, as evidenced by their high turn over and trading volume. Thanks to our strong relationships with brokers and solid market making support, our ETFs offer a tight bid ask spread, which also contributes to the popularity of our product.
BM: Among your most popular offerings are high-dividend ETFs. However, as global interest rates gradually rise, do you think investors’ appetite for dividend plays will be affected? And how will rising rates impact on investors’ asset-class preferences?
YP: This is a common question among dividend investors of late. Although interest rates are rising gradually, there is still a notable spread between the yield of high dividend and broad-market fixed-income strategies. To look to reduce a portfolio’s sensitivity to and potential losses from rising interest rates, especially in today’s environment, investors may consider substituting dividend-oriented equities for bonds. That said, though, dividend-oriented equities tend to have greater interest rate sensitivity than other equities, experiencing greater price declines when interest rates rise and greater price increases when rates fall.
Also, the downside is that substitution, or replacing bonds with high-dividend strategies, may expose investors to unintended consequences, such as losing the diversification benefits provided by bonds. It is also worth emphasizing that the potential drawdown risk of dividend oriented equities far exceeds that of bonds.
BM: On top of the potential bond-to equity shift you just mentioned, what kinds of major changes should dividend investors expect in the equity market, where valuations are already elevated? How should they position for these changes?
YP: Our research indicates that dividend oriented equity strategies are best viewed from a total-return perspective, taking into consideration returns from both income and capital appreciation. Global equity has already rewarded patient investors with a 15.5% annualized return over the 8 ½ years since the lows of the financial crisis.
With this in mind, our equity outlook for 2018 and beyond is modest, at best. Elevated valuations, low volatility, and secularly low interest rates are unlikely to be allies for robust financial market returns over the next five years, with downside risks more elevated in the equity market than in the bond market, making our equity outlook highly guarded.
In our view, the solution to this challenge is not shiny new objects or aggressive tactical shifts. Rather, our market outlook underscores the need for investors to remain disciplined and globally diversified, armed with reasonable return expectations and low-cost strategies.
BM: In low-cost strategies, ETFs are fitting choices. However, size begets size in the ETF market – the largest ETFs often enjoy more capital inflows thanks to their higher brand recognition. What should market players do to bring about a healthier ETF market development?
YP: To usher in a healthier ETF market development, we should understand investors’ needs for high-quality, high-value products. They often invest in investment products that will help them meet long-term goals and objectives. If a market participant consistently offers appropriate products for investors to achieve their goals, brand recognition can be built over time. Therefore, ETF issuers should focus on how to offer products with quality and value and give investors a good investment experience. BM

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擊中低成本高收益紅心

yan-pu

亞洲區投資組合主管浦彥
領航投資

球低息環境持續,愈來愈多資本投進收入導向型產品來抵禦微薄的存款利率,其中一樣適用於此目的的投資工具是股息支付ETF,該產品旨在產生穩定的收入,同時把成本降至最低。這趨勢對於擅長設計低成本投資產品的領航非常有利,令公司贏得今年「交易所買賣基金公司大獎(高息ETF)」。 《指標》榮幸與領航投資亞洲區投資組合主管浦彥坐下來談論收入投資和ETF市場的發展。

《指標》:領航以低成本實現收益的專長再次贏得了讚譽。除了低於市場平均水平的收費比率外,您們的ETF產品成功背後還有哪些因素?
浦彥:謝謝,我們非常榮幸獲得此榮譽。領航管理指數型產品四十多年,可謂行業先鋒,利用我們豐富的經驗和嚴謹的指數挑選,運用權重和再平衡能力來管理ETF。因此,我們的產品能夠緊貼追踪基準,是定義「成功」被動產品的關鍵特色之一。
除了低於同業的收費比率外,我們的高息ETF具有強大的流動性,這點最能體現於產品的高成交量。由於我們與經紀建立了穩固關係和得到市場支持,ETF的買賣價差較少,也令我們的產品更受歡迎。
《指標》:您們最受歡迎的產品包括高息ETF,惟隨著加息周期展開,您認為投資者對收息產品的興趣會受影響嗎?而利率上升將如何影響投資者的投資偏好?
浦彥:對高息產品有興趣的投資者而言, 這是最近遇到一個常見的問題。雖然利率正逐漸上升,但高息產品之收益與廣泛市場固定收益策略之間仍有明顯差距。為了減少投資組合對利率上漲的敏感度和潛在損失,特別是在當今的環境下,投資者可能會考慮用收息資產替代債券。儘管如此,收息型股票往往比其他股票具有更高的利率敏感度,當利率上升時價格下跌幅度更大,而當利率下跌時價格上漲幅度亦更大。
另一個問題是,以高息產品取代債券可能會令投資者遭受意想不到的後果,譬如失去債券提供的多元化收益。值得強調的是,股息型股票的潛在下跌風險遠遠超過債券。
《指標》:除了剛才提到的潛在的債轉股之外,股息投資者應該準備在估值已過高的股市上有哪些重大變化?他們又應如何應對這些變化?
浦彥:我們的研究顯示,從收益總額和資本增值兩方面考慮的話,買入高息產品仍是不錯的投資策略。金融危機過後這八年半以來,全球股市已為有耐性的投資者帶來了15.5%的年化回報。
考慮到這一點,我們對2018年及後的股票前景是審慎的。估值水平提高,波動幅度小,長期低息環境在未來五年並不有利金融市場回報,加上股市的下行風險高於債市,這使我們對股市前景保持高度警惕。
我們認為,應對這挑戰的辦法並不是追求新產品,也不是激進地轉變策略。相反,投資者需要保持紀律和分散組合風險,維持低成本策略,並具備合理的回報預期。
《指標》:在低成本策略中,ETF是合適的選擇。然而在ETF市場中,所謂「規模產生規模」,最大的ETF通常擁有更多的資本流入,這要歸功於其品牌認知度,市場參與者應如何推動ETF 市場更健康發展?
浦彥:為了迎接更健康的ETF市場發展,我們應該了解投資者對高質量高價值產品的需求。他們經常投資於能夠幫助他們實現長期目標的投資產品,如果市場參與者能為投資者提供適當的產品以實現其目標,則可以隨著時間的推移建立品牌口碑。因此,ETF發行人應專注推出優質的投資產品,給投資者良好的投資體驗。BM

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