S&P Indices is looking to tap into two trends with its latest product: strong interest in high-dividend opportunities* and an expanding range of home-grown Asia-focused indices.
The US-based index provider is set to announce today the launch of the S&P Pan Asia Select Dividend Opportunity Index and an ethical version of the same benchmark.
The firm is working on licensing the conventional index to a fund manager to create a high-dividend ETF in Hong Kong, which unlike Japan and Singapore doesn’t have such a product among its 76 existing ETFs.
S&P Indices is also working on licensing the ethical version of the index to a Malaysian fund manager with a view to an ETF being listed in Singapore, says Simon Karaban, Asia-Pacific head of index research and design in Hong Kong.
It was built to appeal to pension funds and government entities, which have expressed interest in the dividend concept but cannot invest in stocks related to alcohol, gaming, pork or tobacco.
S&P, which won last year's AsianInvestor local index provider award, declined to mention the names of the licensees it is working with. (AsianInvestor is currently inviting pitches for this year's Service Provider Awards, for which details can be found here.)
There’s been strong interest in dividends in the past year for a couple of reasons, says Karaban. Firstly, they provide an income cushion in times of market stress for investors who would rather receive regular payments than have to sell down holdings in volatile markets to obtain cash. In addition, inflation has been a big story and often high dividend yields are seen as something of an inflation hedge.
The dividend indices are the latest in a list of 15 Asia-related products S&P launched this year (see table, below), including three in the past two weeks. The series includes emerging Asia and Southeast Asia, Indian and Korean underlyings, and includes risk-control indices, which target a certain volatility level.
|Asia-focused S&P indices launched in 2011 (launch date)|
|S&P/Standard Chartered Greater China Index||January 10|
|S&P Southeast Asia 40 Index||January 10|
|S&P Japan Regional Index – Tokai||February 1|
|S&P/ASX 200 Risk Control Daily 12% Index||April 13|
|S&P CIVETS 60 Index||May 2|
|S&P Risk Control-2 Asia 50 Index||May 26|
|S&P Risk Control-2 BRIC 40 Index||May 26|
|S&P Emerging Asia Consumer Index||June 1|
|S&P Korea Corporate Group Cluster Series 2 Index||June 15|
|S&P CNX Nifty Futures Index||June 27|
|S&P Pan Asia Ex-JANZ LargeCap Sector Index Series||July 21|
|S&P Emerging Asia 40 Index||July 25|
|S&P Next Emerging 40 Index||August 11|
|S&P Risk Control Next Emerging 40 Indices||August 11|
|S&P Asia Pacific Select REIT 40 Index||August 18|
Many of these reflect a growing trend to manage benchmarks more actively and introduce different factors to help diversify from the traditional market-cap-weighted method of calculation.
Demand has come mainly from ETF and structured product providers within Asia-Pacific. Emerging markets and dividends have been the themes attracting the most interest, says Karaban.
S&P's dividend indices provide exposure to stock markets that offer a “plentiful basket” of names the firm can use, he says, such as Hong Kong, China H-shares, Singapore, South Korea and Thailand. “We wouldn’t want to take just one or two from, say, the Philippines as that would create undue costs,” notes Karaban, adding that names will be taken from a broad range of sectors.
The indices employ an ‘optimisation algorithm’ which weights stocks by the highest dividend yield and imposes exposure caps by country (20%), sector (20%) and individual stock (5%) to ensure diversification. Asked about the likely timeframe for the ETF launches, Karaban said it would be more suitable for the ETF provider to comment.
The S&P Pan Asia Select Dividend Opportunity index may offer around the same yield as rival products such as the Dow Jones Asia Pacific Dividend Select 30, he notes, but should offer more diversification as it references 50 stocks and has stricter diversification rules.
S&P Indices is unlikely to go down the route of customising the dividend benchmark for separately managed accounts. “If institutions or private banks wanted dividend exposure,” says Karaban, “they’d probably get it through an ETF.”
*See the upcoming (September) issue of AsianInvestor for a feature on dividend-focused investments.