Core Viewpoint - The recent performance of dividend funds has come under pressure due to a shift in market focus towards technology growth stocks, leading to investor concerns about the effectiveness and value of dividend strategies [1][2]. Summary by Sections Dividend Funds Under Pressure - From September 18 to 19, the stock price of Industrial and Commercial Bank of China experienced two consecutive declines, with other bank stocks also performing poorly, resulting in a 4.21% drop in the banking index, the largest decline among 31 Shenwan first-level industry indices [1]. - Approximately 90% of equity dividend funds reported negative returns last week, and around 70% of these funds have negative returns over the past month [1]. Market Sentiment and Concerns - Investors expressed confusion and dissatisfaction regarding the performance of dividend funds on social media, with some humorously suggesting they were "hiding from the market" within these funds [2]. - Concerns were raised about the potential of holding dividend funds at high prices due to the recent downturn in bank stocks [2]. Effectiveness of Dividend Strategies - According to Huaxia Fund, the dividend strategy has not lost its effectiveness; rather, there has been a short-term shift in market style. High dividend assets provide long-term stable returns and low volatility, serving as a ballast in investment portfolios [2]. - The relationship between technology growth and dividend assets is seen as complementary, with dividend strategies likely remaining effective in the long term, especially in the context of global economic uncertainties [2]. Defensive Capabilities of Dividend Strategies - Haitong Securities noted that the appeal of dividend strategies has grown due to their defensive capabilities during volatile market conditions. For instance, from 2021 to 2024, dividend indices outperformed the broader market during periods of decline [3]. - Dividend assets are not only favored during market downturns but also represent a long-term choice for conservative investors, particularly in a low-interest-rate environment [3]. Recommendations for Dividend Strategy Enhancement - Institutions suggest that investors consider a "barbell strategy," which involves combining dividend assets with high-growth assets to capture structural opportunities while maintaining a resilient investment portfolio [4]. - Specific recommendations include investing in Hong Kong dividend funds, which are characterized by deep value and stable performance, particularly in mature sectors like energy and finance [4]. - Investors are also encouraged to explore various dividend index products, such as free cash flow series and dividend quality index products [4].

Core Insights - The mid-term cash dividend wave in A-shares is creating a historical high in dividend scale, with 818 listed companies announcing cash dividend plans, an increase of 141 companies compared to the previous year, and a total cash dividend amount reaching 649.7 billion yuan [1] Group 1: Market Trust and Stability - Mid-term dividends enhance the timeliness and predictability of shareholder returns, fundamentally boosting long-term holding confidence among investors [2] - Regular dividends compel companies to optimize cash flow management and governance structures, reducing impulsive expansions and improving capital allocation efficiency [2] - The establishment of a virtuous cycle of "stable profits - regular dividends - reinvestment" significantly strengthens the internal foundation for stable development in the A-share market [2] Group 2: Index Product Innovation - The implementation of mid-term dividends is expanding the group of high-dividend companies, enriching the sample sources for dividend indices and promoting continuous optimization of index compilation methods [2] - The increased attractiveness of dividend indices is stimulating innovation in related financial products, including the steady growth of traditional broad-based dividend ETFs and the emergence of niche tools like industry-themed dividend ETFs and Smart Beta strategies [2] Group 3: Long-term Capital Attraction - The diversification and maturation of the dividend index product system significantly attract long-term funds such as insurance and pension funds, guiding more institutional capital into the market [3] - This creates a positive cycle of "high-quality dividend assets - index optimization - product innovation - long-term capital inflow," enhancing the overall supply capacity of capital market products and improving market resilience [3] Group 4: Value Investment Shift - Mid-term dividends shift market focus from "valuation speculation" to "real returns," accelerating the migration of funds from short-term trading to long-term allocation [3] - Institutional investors are increasingly inclined to invest in stable dividend-paying and high-quality cash flow assets, pushing the valuation system back to fundamental logic [3] - Individual investors are gradually shifting towards seeking compound growth, reducing speculative trading behaviors, which further optimizes the capital structure in the A-share market [3]

Core Viewpoint - Companies with sufficient free cash flow are considered to have superior investment value during market downturns and early recovery phases, as they can better adjust strategies and enhance long-term investment value [2][3]. Group 1: Importance of Free Cash Flow - Free cash flow is a key indicator of financial quality, utilized for shareholder returns, stock buybacks, capital structure optimization, strategic expansion, and building financial safety nets [2]. - In recession and early recovery phases, companies with ample free cash flow can adapt more quickly and effectively, attracting more attention from investment managers [2]. Group 2: Performance of Free Cash Flow Indices - In the U.S., free cash flow index products have significantly outperformed broad market indices during interest rate hikes, gaining acceptance among investors [3]. - As of March 12, 2025, there are five U.S. free cash flow index products with over $1 billion in assets, showing strong performance compared to dividend indices during the same period [3]. Group 3: Characteristics of Free Cash Flow Indices in China - China's free cash flow index compilation methods are similar to those in the U.S., excluding financial and real estate sectors and prioritizing stocks with high free cash flow rates [3]. - The individual stock concentration in China's free cash flow indices is more relaxed compared to the U.S., with different criteria for negative exclusion among index providers [3]. Group 4: Index Features and Performance - The dividend yield of free cash flow indices ranges from 3% to 5%, similar to dividend indices, while the price-to-earnings ratio is higher at 11 to 18 times [4]. - Long-term performance of free cash flow indices has consistently outperformed the China Securities dividend index, with annualized returns around 12% in risk parity backtests [4]. Group 5: Current Market Trends - Since 2024, 36 free cash flow products have been issued or are in the application phase in China, primarily focusing on passive index funds [5]. - High free cash flow rate active equity funds and "fixed income plus" funds are increasingly considering free cash flow in their investment strategies [5].

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