Can dividend-focused ETFs break through amid stock market volatility and rising inflation?

Recently, the A-share market has experienced volatility, with domestic and international oil prices rising simultaneously, and the PPI and CPI indices continuing to rebound, forming a divergence pattern of “asset pressure and rising prices.” Against this backdrop, dividend assets, with their unique advantages, have become a preferred choice for investors to hedge against inflation and achieve steady returns.

• From the metaphor of “rent collection” to allocation advantages, understanding the investment logic of dividend assets

People often refer to dividend assets as “rent-collecting” assets mainly because these assets generally have stable profitability, ample cash flow, and are willing to return cash dividends to shareholders—cash dividends issued by companies are like regular “rent” payments. From an allocation perspective, these assets have two core advantages:

First is the prominent benefit from inflation. Companies associated with dividend assets are largely distributed across cyclical industries such as upstream resources, traditional manufacturing, and large financials. When the macro economy enters an inflation cycle, commodity and physical asset prices rise. Companies in the upstream of the industry chain or those with strong pricing power can directly benefit from higher product prices, leading to rapid recovery in profits and rising stock prices.

Second is stable and sustainable cash flow. During market turbulence, the uncertainty of capital gains increases, but the high dividend yield characteristic of dividend assets can provide additional income compensation. Abundant free cash flow is the foundation for these companies to continue paying dividends. Continuous dividend payouts are like ammunition supplies, helping investors smooth out account fluctuations.

• How to allocate “rent-collecting” dividend assets?

In the A-share market, there are two types of indices that match the characteristics of the above “rent-collecting” dividend assets and are worth paying close attention to.

The first type is dividend indices. For example, the CSI Dividend Index is a classic representative of high-dividend A-shares, mainly selecting companies with stable historical dividends and high dividend yields, primarily in industries such as finance, cyclical sectors like coal and transportation; additionally, the CSI Low Volatility Dividend Index, which overlays a low-volatility factor, has more defensive attributes, with industries like banking as a base, and rebalanced allocations to coal, transportation, and other cyclical sectors. In an inflationary environment, energy industries like coal benefit directly from rising commodity prices, with strong profit growth momentum; transportation and banking sectors provide stable cash flow and dividends, making them good defensive and counterattack targets during volatile markets.

Regarding investment tools, market-listed dividend ETFs such as E Fund (515180, with connection funds A/C/Y: 009051/009052/022925) and E Fund Low Volatility Dividend ETF (563020, connection funds A/C: 020602/020603) offer low management fees of 0.15% per year, providing investors with convenient tools to access dividend indices.

The second type is the “Dividend+” indices, which represent value and cash flow. If dividend indices are more purely high-dividend defensive assets, then “Dividend+” indices add some offensive elements to defense.

For example, the Guozheng Free Cash Flow Index focuses on companies with high cash flow generation ability, covering core inflation-benefiting sectors like oil refining and non-ferrous metals. It is more aggressive and can capture structural gains while resisting inflation; another example is the Guozheng Value 100 Index, which, beyond high dividends, incorporates low P/E ratios and high cash flow indicators, maintaining the “rent-collecting” attribute while showing stronger offensive resilience during economic recovery.

E Fund Free Cash Flow ETF (159222, connection funds A/C: 024566/024567) and E Fund Value ETF (159263, connection funds A/C: 025497/025498) provide diversified options for investors to access these two “Dividend+” indices.

Currently, the core demand for asset allocation has quietly shifted toward “steady risk resistance.” It may be wise to use dividend ETFs and low-volatility dividend ETFs as the core defensive positions, complemented by offensive and defensive assets like free cash flow ETFs and value ETFs, forming a combined strategy to cope with inflation and market volatility.

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Editor: Liu Wanli SF014