The Defensive Nature of Dividend Investing: A Strategy for Uncertain Times (Part 2.0)
During times of weak market conditions, investors encounter challenges in remaining invested. Taking Malaysia market as example, the FBM KLCI Index experienced a decline of 2.0% in May and 7.2% year-to-date (YTD), underperforming many other markets and most ASEAN peers except Thailand. The local market’s weakness is primarily attributed to the continuous foreign selling, concerns regarding the local banking sector in light of the recent global banking crisis (the FBM KLCI Index has substantial exposure to banks), and underwhelming corporate earnings results.
Figure 1: Global Market Performance (up to 31 May 2023)
Source: Bloomberg, compiled by PCM
Meanwhile, the ongoing weakness in the Malaysian Ringgit has exacerbated the prevailing negative sentiment, with the local note weakened by 4.5% against the USD YTD, continuing its downward trend from the previous year (2022: -5.8%). Apart from some concerns domestically (fiscal concerns, lack of structural reforms, politics etc), MYR continues to be influenced by global factors:
- Strong USD (DXY index ↑ 2.6% in May & 0.8% YTD)
- Weaker-than-expected China’s economic data (among regional countries, MYR has the highest correlation with CNY).
Figure 2: Currency Performance vs USD (up to 31 May 2023)
Source: Bloomberg, compiled by PCM
Notwithstanding the prevailing conditions, we hold the belief that there are still areas of potential opportunities within the market. In our previous article, we examined the effectiveness of dividend investing as a strategy during times of market weakness and uncertainty, and the benefits of dividend investing should not be ignored by investors.
PMART Dividend Enhanced and PMA Dividend Enhanced
Our PMART Dividend Enhanced and PMA Dividend Enhanced is an income-driven portfolio focused on high dividend-yielding equities. We apply the Dog of the Dow approach, screen and select top market cap stocks to minimise risk and ensure consistent performance. The portfolio is an equal weighting portfolio which reduces concentration risk and provides similar exposure to all clients, both initially and after rebalancing. We offer both conventional and Shariah investment options to cater to the diverse needs of our investors.
Despite challenging market conditions, the performance of our PMART Dividend Enhanced and PMA Dividend Enhanced demonstrated remarkable resilience. The Conventional mandate was able to register positive returns of +6.46% YTD, outperforming its benchmark by +13.71%. Meanwhile, the Shariah mandate achieved a +2.56% of growth YTD, outperforming its benchmark by +5.60%. This can be attributed to our portfolio’s focus on high-quality companies that possess defensive earnings profiles and exhibit promising dividend prospects and yields.
Figure 3: Performance of Dividend Enhanced (Conventional) Mandate
Source: PCM, accurate as of 31 May 2023
Figure 4: Performance of Dividend Enhanced (Shariah) Mandate
Source: PCM, accurate as of 31 May 2023
Figure 5: List of companies in Conventional Mandate
Source: PCM, accurate as of 31 May 2023
Figure 6: List of companies in Shariah Mandate
Source: PCM, accurate as of 31 May 2023
Malaysia’s Outlook
We continue to believe the market is likely to stay challenging in 1H23 due to some earnings risks from rising costs (electricity and labour). Nonetheless, we expect a sustained market recovery in 2H23, driven by improving earnings outlook (in the absence of prosperity tax and other taxes like gaming tax), low foreign holding and relative political stability. Malaysia’s fundamentals remain strong on firm domestic demand and resilient external trade activities. On the positive side, given our strong diplomatic relations with China, China’s economic recovery is raising our prospects for improving bilateral trade and returning Chinese tourists.
Please click on the link to learn more or email us at cse.my@phillipcapital.com.my if you require any further information.
Disclaimer:
The information contained herein does not constitute an offer, invitation or solicitation to invest in Phillip Capital Management Sdn Bhd (“PCM”). This article has been reviewed and endorsed by the Executive Director (ED) of PCM. This article has not been reviewed by The Securities Commission Malaysia (SC). No part of this document may be circulated or reproduced without prior permission of PCM. This is not a collective investment scheme / unit trust fund. Any investment product or service offered by PCM is not obligations of, deposits in or guaranteed by PCM. Past performance is not necessarily indicative of future returns. Investments are subject to investment risks, including the possible loss of the principal amount invested. Investors should note that the value of the investment may rise as well as decline. If investors are in any doubt about any feature or nature of the investment, they should consult PCM to obtain further information including on the fees and charges involved before investing or seek other professional advice for their specific investment needs or financial situations. Whilst we have taken all reasonable care to ensure that the information contained in this publication is accurate, it does not guarantee the accuracy or completeness of this publication. Any information, opinion and views contained herein are subject to change without notice. We have not given any consideration to and have not made any investigation on your investment objectives, financial situation or your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any persons acting on such information and advice.
