This fund gives investors access to an asset class directly linked to company fundamentals, which offers a unique opportunity in light of historically low dividend valuations.
- Dividends: A “real” asset, in phase with current investor expectations
As an asset closely linked to company fundamentals, dividends offer performance that has been historically correlated to equities, yet more stable. In view of this, investments in dividends can be integrated into a diversified portfolio to complete an equity pocket.
Nevertheless, until now investing in the dividends market was only an option for a small group of professional investors. The creation of “futures” on dividends in June 2008, amongst other factors, has lead to the dividends market becoming more liquid and more open, attracting a growing number of investors.
- Historically low valuations that provide investors with a unique buying opportunity
The market prices of dividends are at the levels anticipated for the coming years. The current opportunity is linked to these anticipated levels, which are historically low.
In fact, since the beginning of the market downturn, the levels of anticipated dividends between 2010 and 2012 dropped much more than those of equities: -63% for the anticipated dividends of the Dow Jones Euro Stoxx 50® vs -47% for the index itself (between January 2008 and the 27th of April 2009).
Today, the financial market anticipates that dividends distributed in 2010, for instance, will be 2.5 times less than dividends distributed in 2008. This estimate corresponds to a scenario in which the companies from the banking, automobile and construction sectors will not distribute any dividends for the upcoming year, whilst the dividends distributed in the other sectors will be significantly reduced.
This extreme scenario, which has never before been recorded, is neither in line with the Bloomberg Consensus nor with Exane BNP Paribas analysts who estimate that this level of realised dividends will be around two times higher than the level currently anticipated by the market.
- Harewood Euro Long-Dividends: A simple and transparent solution to capture this opportunity
The fund relies on a systematic strategy developed by BNP Paribas CIB research teams and implemented by Harewood Asset Management, allowing a direct exposure to dividends (not to the equities that pay these dividends).
The exposure to the dividends is obtained in a simple and transparent way: the fund systematically trades the dividend swaps on the Dow Jones Euro Stoxx 50® index. In order to avoid the exposure to the dividends being concentrated entirely in one year, the swaps have different maturities spread throughout the four following years. These are then regularly renewed as they reach maturity.
The strategy employed by the fund presents dual advantages. The swaps benefit both from the difference between the purchase price of anticipated dividends and their values at the time of distribution, and from any appreciation over time in the values of anticipated dividends.
In exceptional circumstances, Harewood AM reserves the right to entirely or partially reduce the exposure to dividends in order to protect the investors' interests.
Characteristics of the Harewood Euro Long-Dividends fund
- Management company Harewood Asset Management
- AMF Category Diversified Investment Fund
- Type of underlying Dividends of European Equities
- Fund type French Fonds Commun de Placement, UCITS III
- Recommended investment horizon 5 years
- Management objective To offer an overall exposure to the evolution of the DJ Euro Stoxx 50® Index dividends
- Cut-Off 5 PM, J-1
- Capital protection No
- ISIN code FR0010722272
- Bloomberg ticker HAMEULD FP Equity
- Launch date April 3, 2009
- Currency EUR
- Initial NAV 1,000 EUR
- Minimum initial subscription 250 shares
- Maximum entry fees 4%
- Maximum exit fees 1%
- Maximum management fees 1% per year
- Performance fees 0%
Harewood Asset Management is an investment management company, 100% owned by BNP Paribas. Established in 2004, Harewood AM combines its asset management expertise with the skills of BNP Paribas' Corporate and Investment Bank (CIB). Harewood Asset Management distinguishes itself through innovative solutions capitalizing on CIB's expertise in: quantitative management, option-based strategies and derivative assets from market activities such as volatility, correlation and dividends.
This capacity for innovation has recently been rewarded by the “Prix de l'Innovation des Placements Financiers La Tribune – SGSS 2009”.
About BNP Paribas Corporate and Investment Banking
BNP Paribas Corporate and Investment banking division (http://cib.bnpparibas.com/) has almost 16,000 employees, deployed in 53 countries around the world. BNP Paribas CIB excels in three fundamental sectors in particular:
Derivatives - it is one of the leading global players in rates, credit, forex, commodity and equity derivatives
Capital markets - it is amongst the top ten Euro houses for both ECM and DCM (bond issues, securitization, convertibles and shares).
Structured finance - it is amongst the world leaders for acquisition, export, project and commodity finance.