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~ by Snehasish Chaudhuri, MBA (Finance).
The U.S. economy had enough volatility during the past years. Unemployment, higher tariff, covid-related supply chain disruptions, interest rate hikes, tax cut, inflation, all played their role. During such a troubled time, iShares Asia/Pacific Dividend ETF (DVYA) provided a consistent dividend with a significantly high yield. The fund was formed on February 23, 2012 by BlackRock, Inc., and has been paying quarterly dividends on a consistent basis.
This BlackRock Fund Advisors’ managed exchange-traded fund (“ETF”) invests in dividend paying stocks in the developed public equity markets of Asia-Pacific region. DVYA’s portfolio includes both stable stocks as well as high growth stocks. This Asia-Pacific fund is currently trading at a marginal premium of 0.15 percent from its NAV.
DVYA Invests Primarily in Equity Markets of Australia, Hong Kong and Japan
iShares Asia/Pacific Dividend ETF benchmarks its performance with that of Dow Jones Asia/Pacific Select Dividend 50 Index and uses representative sampling techniques to create its portfolio. This index measures the stock performance of high dividend paying stocks listed in Japan, Hong Kong, New Zealand, Australia, and Singapore. Due to representative sampling, DVYA’s portfolio is created by selecting some stocks of the benchmark index in such a way that it reflects the essence of the index. The stocks are selected from every segment, every geographic region, and from every market size. Portfolio has an expense and turnover ratio of 0.49 percent and 45 percent respectively.
iShares Asia/Pacific Dividend ETF has a portfolio of only 50 stocks, and at least one percent of its total asset is invested in each stock. So, each of these stocks carry significant weightage in this portfolio. A sixth of DVYA’s portfolio is invested in Australian materials and energy firms such as Viva Energy Group Ltd and Fortescue Metals Group Limited. Incidentally, this fund has no investment in healthcare companies, which is a bit surprising.
DVYA’s Asset Managers Went for Stocks of One Sector Particularly from One Country
There is a visible pattern in DVYE’s investment strategy. The fund went for stocks from one sector particularly from one country, in which those sectors are dominating and have strong growth potentials. However, the iShares Asia/Pacific Dividend ETF has been able to equally distribute its investment in basic/core industries (energy, utilities, materials, real estate, consumer staples and durables), and investment in secondary & tertiary industries (financial, healthcare, information & communication technology (ICT), industrial). Stocks from the basic sectors are steadier, as these companies are relatively less impacted by economic recession. On the other hand, companies in secondary and tertiary industries generate higher growth rate, but also are more volatile.
Around 21 percent of its assets are invested in industrial stocks mostly in the Japanese market such as Mitsui and Sumitomo Corporation. Another 20 percent of DVY’s portfolio is invested in financial stocks, majority of which belongs to Australian banking companies such as Magellan Financial Group Limited (OTCPK:MGLLF) and so on. Most of these stocks, too, failed to generate positive price growth during the past 5 years. However, price growth during the past 6 months has been good.
DVYA Invested in Stocks from Real Estate, Utilities and ICT Sectors of Hong Kong
One quarter of its portfolio is invested in Hong Kong based ICT and utilities firms such as Vtech Holdings Limited (OTCPK:VTKLY) and CK Hutchison Holdings Limited (OTCPK:CKHUY); and in a bunch of real estate businesses such as Kerry Properties Limited (OTCPK:KRYPF) and New World Development Company Limited (OTCPK:NDVLY). Sadly, all these stocks failed to deliver price growth during the past five years. Price growth of these stocks was disappointing during the past 6 months, too.
DVYA Generated Above-Average Yield, But Disappointing Price Performance
iShares Asia/Pacific Dividend ETF has been able to generate above average yields over the years. Over the past 10 years, its annual average yield was almost 5.55percent. In 2022 and 2023, annual yield stood at 6.8 percent and 7.2 percent, respectively. This was possible because of the dividend declared by the stocks included in DVYA’s portfolio. Otherwise, the price performance of those stocks was nothing impressive. As discussed earlier, most stocks in DVYA’s portfolio failed to generate positive price growth both during the short term, as well as in the long-run. This also resulted in disappointing price growth for DVYA. During the past five years, its price dropped by 26 percent.
Investment Thesis
iShares Asia/Pacific Dividend ETF invests in developed public equity markets of the Asia-Pacific region, mainly in the markets of Australia, Japan and Hong Kong. The fund invests in dividend paying stocks from one specific sector particularly from one country, in which those sectors are dominating and have strong growth potentials. But at the same time, it has been successful in diversifying its portfolio among stocks from basic sectors as well as from secondary & tertiary industries. This portfolio of 50 stocks has a significantly high turnover ratio and has invested at least 1 percent in each of these stocks.
iShares Asia/Pacific Dividend ETF provided a consistent dividend with a significantly high yield. This was possible because of the dividend declared by the stocks included in DVYA’s portfolio. Otherwise, the price performance of those stocks was nothing impressive. Most stocks in its portfolio failed to generate positive price growth both during the short term, as well as in the long-run. This also resulted in disappointing price growth for DVYA. Thus, this high-yielding fund is suitable for income-seeking investors. Growth-seeking investors should better stay away from investing in DVYA. And due to the current market premium, there is no point in further accumulating fresh units.
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