One Way to Circumvent the China Rate Cut

One Way to Circumvent the China Rate Cut By: Efram Slen
on 11/23/2015

After markets closed on October 23, 2015, China cut its benchmark interest rate for the sixth time since last November. One way to combat decreasing interest rates in a portfolio is to look to dividend themed strategies. Under the Dividend Achievers brand, Nasdaq offers indexes with exposure to dividends in multiple parts of the world. For this region, Nasdaq offers the Nasdaq Asia Ex Japan Dividend Achievers Index.

Why utilize this index as your dividend benchmark for the region?

The index is built, as all Nasdaq Dividend Achievers Indexes are, around a track record of increasing dividends. After extensive research, it was determined that three years of increasing dividends was the optimal time horizon for securities in this region. In addition to the dividend achievers requirement, there is a dividend sustainability aspect to this methodology, ensuring that securities that have the dividend track record are also positioned to maintain that through positive historical cash flows. Lastly, as with all Nasdaq tradable indexes, there are minimum eligibility requirements that each security must pass including minimum liquidity and size thresholds.

Sufficient Exposure to China and the rest of Asia

As expected, the index has very high historical and current exposure to China. As you can see below, the index had a 28% weight in China as of the most recent quarter end. Other than China, the index offers broad diversification to nine other countries in Asia.

Yield

The index has had a very consistent yield and it is currently at 3.5%. Comparing the index to its benchmark (NQASPAXJP), the index has higher historical yield year-to-date over almost every period.

Conclusion

Whenever reaching for yield, one has the option to go the fixed income or equity route. If one has concerns about the fixed income route due to the rate environment or are looking to go the equity route, one solution may be a basket of stocks that have a strong dividend track record and dividend sustainability. The Nasdaq Asia Ex Japan Dividend Achievers Index offers both of those aspects in addition to a high historical allocation to China (between 25% and 40% historically) and a consistent yield around 3.5%.

Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED. © 2015. Nasdaq, Inc. All Rights Reserved.

NASDAQ® and NASDAQ® are registered trademarks of The NASDAQ Group, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither The NASDAQ Group, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding NASDAQ-listed companies or NASDAQ proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

© 2015. The NASDAQ Group, Inc. All Rights Reserved.

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