Why should you allocate to dividend-focused index funds amid stock market volatility and inflation?

Why Are Dividend Assets Called “Rent Collection” Investment Options?

Most investors might have recently felt confused: opening market apps, the market fluctuates up and down; going to refuel, gas prices are now much higher than before, and the once casually said “92 octane, full tank!” now makes you hesitate; the prices of raw materials and consumer goods are also rising, and money seems to be losing value—this is the dual challenge of “stock market volatility” and “inflation” we face today.

Against this backdrop, investors are caught in a dilemma: want to make money but fear losing principal in market swings; want to preserve their money but worry about inflation devaluing it. Dividend assets are the key to solving this dilemma, and index funds are the main tool for deployment.

Why Are Dividend Assets Called “Rent Collection” Assets?

Dividend assets are also known as “rent collection” assets, and the core reason is simple: the companies behind these assets are stable earners, have sufficient cash on hand, and are willing to distribute their profits to investors via cash dividends. When we buy dividend assets, it’s like renting out a property—you receive “rent” regularly.

Financial management values “stability” and “simplicity” most, and the companies behind dividend assets are mostly concentrated in industries like coal, oil, transportation, and banking. Their two main advantages precisely meet our needs.

First advantage: Resistance to inflation and protection against devaluation. When inflation occurs, the prices of products from coal, oil, and similar industries tend to rise, allowing companies to earn more money, and their stock prices often follow suit.

Second advantage: Stable cash flow that can withstand stock market fluctuations. During market volatility, many stocks fluctuate several points in a day, causing anxiety. The biggest benefit of dividend assets is their “stability”—compared to growth assets, their stock prices fluctuate less; industries like transportation and banking, which are “ballast” sectors, have relatively stable revenue and profits, providing steady cash flow and dividends.

Practical Investment: How to Deploy Dividend Assets?

Many investors ask: knowing dividend assets are good, but how to buy them? Instead of directly purchasing individual stocks, using index funds for deployment is simpler, with lower costs and risks. In the A-share market, there are two types of indices that allow direct deployment of dividend assets, worth paying attention to.

The first type is defensive dividend indices. For example, the CSI Dividend Index selects companies with stable dividends and high dividend yields. The top three sectors—banking, coal, and transportation—together account for over 50%, providing inflation resistance and stable cash flow; there’s also the CSI Low Volatility Dividend Index, which has stricter requirements on stock price fluctuations, with banks making up 50%, emphasizing its defensive nature.

Corresponding index funds include the E Fund CSI Dividend ETF Connect Fund (A/C/Y: 009051/009052/022925) and the E Fund CSI Low Volatility Dividend ETF Connect Fund (A/C: 020602/020603), both with an annual management fee of 0.15%.

The second type is a balanced “Dividend+” index. For example, the Guozheng Free Cash Flow Index includes companies with “particularly abundant cash flow,” such as those in oil refining, non-ferrous metals, and other “inflation-benefiting” industries. Strong cash flow companies can pay dividends and also reinvest for expansion, combining “dividends” and “flexibility.” Corresponding products include the E Fund Guozheng Free Cash Flow ETF Connect Fund (A/C: 024566/024567); another more comprehensive index is the Guozheng Value 100 Index, which considers high dividend yield along with low P/E ratio and high cash flow rate—high dividend yield indicates reliable dividends, low P/E suggests the stock isn’t expensive, and high cash flow rate shows stable earnings. The corresponding product is the E Fund Guozheng Value 100 ETF Connect Fund (A/C: 025497/025498).

If you have a stock account, you can also deploy through on-market ETFs, such as the Dividend ETF E Fund (515180), the Low Volatility Dividend ETF E Fund (563020), the Free Cash Flow ETF E Fund (159222), and the Value ETF E Fund (159263).

For investors, given the current market environment, the goal of financial management is “stability”—first preserve principal, resist inflation, then gradually grow. It’s advisable to use dividend indices as a defensive core, complemented by the balanced “Dividend+” index, forming a “combo” to cope with stock market volatility and inflation.

Risk reminder: Funds are risky; investments should be cautious.