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With worries on China spooking Indian markets, the new year has opened on a volatile note for equity investors.
In such a scenario, dividend yield funds are an ideal fit for conservative investors, offering stability in yo-yoing markets.
Following a high dividend yield strategy also means focusing on those stocks that may have been beaten down. Tata Dividend Yield is a good pick.
The fund has a mandate to invest at least 70 per cent of its portfolio in stocks that have a dividend yield higher than the Sensex, now at 1.45 per cent.
Strategy and performance
Benchmarked to the Nifty 500 index, the fund sports a multi-cap flavour. In the last few years, its mid-cap holdings have moved anywhere from 20 to 40 per cent of the portfolio, depending on the market direction.
Thus, while the 2014 rally saw the fund investing up to 38 per cent of its portfolio in mid-cap stocks, the volatile markets of 2013 saw the fund taking refuge in large-caps by investing up to 80 per cent of its portfolio in them.
Similarly, the fund also treads with care in sector allocations, moving up holdings in defensives such as pharma, consumer non-durables and software in corrective phases.
However, it makes up for these somewhat conservative strategies by remaining 95-98 per cent invested in equities at all times. These traits have helped the fund outdo the Nifty 500 with ease through rallies (2014), falls (2011) and iffy markets (2013, 2015).
Overall, the fund has outperformed the Nifty 500 by 4-5 percentage points over one, three and five-year periods.
On a one-year rolling return basis, the fund has beaten the benchmark about 75 per cent of the time in the last five years.
Twenty three of the 34 stocks in the fund’s latest portfolio sport a dividend yield higher than the Sensex’s 1.45 per cent.
Consistent dividend payers such as Hero MotoCorp, Coal India and HCL Technologies find a place in this list. Over the last one year, though the fund cut down on the cyclical banking space, it stuck on to good dividend bets, such as Karur Vysya Bank.
Given the volatility in the markets, the fund has also upped consumer non-durable holdings in the last one year.
IT and pharma exposures have also inched up, with the fund upping stakes in Mphasis, another high dividend yield stock.
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