By Anna J. Park
Dividend-themed mutual funds logged a disappointing performance amid volatile market conditions due to the COVID-19 pandemic.
According to finance information web portal FnGuide Sunday, dividend-themed mutual funds in Korea have recorded a 7.8 percent loss since the start of this year, despite a 15 percent surge during the past three months as the local stock market begins to rebound.
Yet their upward trend is much lagging behind those of other themed funds, such as IT-themed funds, Fourth Industrial Revolution-themed funds and value stock funds, which recorded 26.5 percent, 25.8 percent and 21.2 percent increase respectively, over the past three months. IT-themed mutual funds logged the biggest increase rate of 20.87 percent during the last one-year period, while Fourth Industrial Revolution-themed funds logged the highest rate of returns of 8.6 percent since the start of the year.
Usually, the dividend-themed funds put major dividend-paying stocks from traditionally strong sectors with solid fundamentals, including banking, securities, oil refining and chemistry, into their investment baskets. As dividend-paying stocks are mostly well-established companies, they are preferred in a low-interest-rate market.
However, an overall decrease of corporate profits of most sectors during the coronavirus pandemic led to a cut both in the rate of returns in dividends-themed funds and in the total of amount of assets under management (AUM) under the funds' category.
The dividend-themed mutual funds have suffered a major capital outflow since the start of the year. The total amount of AUM worth 990.4 billion won ($826 million) flowed out of the funds so far this year, which is the largest AUM loss among FnGuide's 43 categories of themed mutual funds.
Market analysts say as the global pandemic has wreaked havoc on major industries' net profits, a more cautious approach to dividend-paying stocks and themed funds is necessary.
"Out of KOSPI 200-listed firms that paid out dividends in the second quarter of last year, the estimated net profit of the firms stands at a year-on-year 16.2 percent decrease in the second quarter this year," said Kim Dong-wan, an analyst at Eugene Investment & Securities, adding that a conservative take on this year's interim dividends is needed.
Other market analysts also pointed out that high-dividend-paying stocks would experience lower demand throughout the year.
"A dividend rate of a company doesn't seem to significantly affect an investor's investment decision making, when market volatility is huge," said Park Hee-chan, an analyst at Mirae Asset Daewoo.
"Investors now endow more value on stocks with high growth potential, such as IT-based contactless industries, as well as healthcare and biopharma sectors. What is common about these high-growth stocks is that they pay out much less dividends than other high-dividend-paying stocks like insurance, banking, steel, oil and chemistry firms."
"While the KOSPI index was cut by about 3 percent compared to the start of the year, dividend-paying stocks saw a 20 percent fall during the same period, and they are recovering at a much slower pace than other stocks," said Kang Bong-joo, an analyst at Meritz Securities Korea.
The analyst added that their temporary attractive as an investment option is losing its luster, as most high-dividend-paying stocks tend to be more sensitive to economic ups and downs.
Meanwhile, market watchers expected this year's dividend rates of firms listed on the KOSPI would remain somewhere around the 2 percent range. Some argue that the dividend stocks and dividend-themed mutual funds could still be stable options, considering that the average dividend rate is much higher than the central bank's key interest rate of 0.5 percent, or one-year government bond of 0.69 percent.