Dividend assets are beginning to "show their face" again

How does AI · Index Rebalancing achieve a high buy-low effect?

Since mid-January this year, as the A-shares market has been oscillating within a range at high levels during a market phase, the previously quiet dividend assets have once again attracted market attention. From January 13 to March 30, 2026, the Shanghai and Shenzhen 300 Index declined by 6.22%, while the CSI Dividend Index rose by 3.29%. In just over two months, the dividend index achieved nearly 10% excess return relative to the Shanghai and Shenzhen 300 Index. Recently, the sudden escalation of Middle Eastern geopolitical tensions has led to a significant decline in global capital market risk appetite, further boosting the attention on dividends.

(Source: WIND, statistical period 2026.1.13-2026.3.30. Past performance of related indices does not indicate future performance and does not guarantee future performance of related funds. The codes for Shanghai and Shenzhen 300 and CSI Dividend are 000300 and 000922 respectively.)

Although the overall market valuation is not considered expensive at present, as the market focus shifts upward in the second half of 2024 and into 2025, it is quite evident that the market’s profit-making effect in 2026 has weakened compared to last year, and the persistence of market hot spots is relatively average. Looking at the performance of the Shanghai and Shenzhen 300 Growth and Value indices this year, both have performed similarly within the year, which means that compared to the one-sided growth style last year, the market style in 2026 has become more balanced, reflecting, to some extent, investors’ increased emphasis on “locking in gains” investment mentality.

In recent years, the “barbell strategy” combining growth and value has gained market attention and recognition. However, since the “924” market rally in 2024, with growth styles strengthening, the focus on the growth side of the “barbell strategy” has been emphasized, somewhat reducing attention to the value style.

This year, as the overall profit-making effect weakens and volatility increases, we believe it is time for investors to pay more attention to dividend assets.

Regarding dividend assets, we previously introduced two dividend index fund products from Huafu Fund: one tracking the CSI Cash Flow Index (932365), namely the Cash Flow Full Index ETF Huafu (561870) and its linked funds (024770/024771), and the other tracking the Dividend Value Index (989016), namely the Huafu Xinhua Zhongchengxin Dividend Value Index Fund (023746/023747).

From a product positioning perspective, these two products are quite distinctive: The former mainly aims to select high-dividend listed companies with greater growth potential, which have abundant free cash flow, capable of rewarding shareholders and seeking further development; The latter strives to improve the high-dividend strategy by using various market indicators (low volatility, low beta, low liquidity, etc.) to exclude companies with valuation traps or those that have experienced rapid short-term gains leading to a decline in dividend yield, thus better focusing on targets with high and sustainable dividend yields. Because these two indices are optimized based on traditional high-dividend strategies, they can be called “Dividend Plus” versions. For investors, you can choose among these two products based on your risk tolerance, asset allocation plan, and market style judgment.

Additionally, regarding the characteristics of the CSI Cash Flow Index (932365) and the Dividend Value Index (989016), we must mention their quarterly rebalancing mechanism (March, June, September, December). In the past, when these indices underwent regular rebalancing, we have provided detailed explanations through articles.

Just recently in March, these two indices completed their first quarterly rebalancing for 2026. This time, as usual, let’s briefly review the details of this rebalancing.

Unlike the June, September, and December rebalancing, the March rebalancing involves relatively less incremental information, resulting in a lower turnover rate compared to other rebalancing periods. This is mainly because, from December last year to March this year, listed companies did not disclose complete financial reports, whereas the other three rebalancing months involve updates with new financial data (June for the previous year’s annual report and Q1 report, September for H1, December for Q3). Since the index construction involves a lot of fundamental data, if these data are not updated, the rebalancing turnover naturally decreases.

CSI Cash Flow Index

According to data disclosed by the index provider, in March 2026:

CSI Cash Flow (932365) added 18 stocks and removed 17 stocks, with a bilateral turnover rate of 39.59%;

Dividend Value (989016) added 10 stocks and removed 10 stocks, with a bilateral turnover rate of 64.9%.

(Source: China Securities Index Co., Zhongchengxin Index Co., Huafu Fund, as of 2026.3.16)

As mentioned earlier, since this rebalancing did not involve updates to fundamental financial data, it mainly reflects changes in stock prices of index constituents during this period.

Let’s take a closer look.

First, the CSI Cash Flow Index. The chart below shows the industry distribution changes caused by this rebalancing, where the top four industries with decreased weights are Basic Chemicals (-5.9%), Petroleum & Petrochemicals (-3.4%), Nonferrous Metals (-2.31%), and Power Equipment (-2.9%); the top four with increased weights are Communications (+7.8%), Computers (+2.8%), Transportation (+2.7%), and Automobiles (+1.5%).

Data source: Wind, China Securities Index Co. Note: The weights after rebalancing are as of March 16, 2026; before rebalancing as of March 13, 2026.

By comparing the industries with the largest weight adjustments, it is easy to see that the industries with significant weight reductions have generally performed relatively well in recent periods, while those with increased weights have been relatively less popular and underperformed.

This reflects the industry distribution change of the CSI Cash Flow Index. If we further examine the changes in individual stock weights, the table below lists stocks with weight changes exceeding 0.25%. It shows that stocks with increased weights during this rebalancing period generally performed weaker, with an average increase of 2.84%; stocks with decreased weights had previously experienced significant gains, with an average increase of 43.66%.

Data source: Wind, China Securities Index Co. Note: The weights after rebalancing are as of March 16, 2026; before rebalancing as of March 13, 2026. The price changes from December to February reflect the performance during the period between the two rebalancing dates (December 1, 2025, to February 27, 2026). These are for index component stocks only and do not constitute stock recommendations. Index components may be adjusted periodically, and this does not guarantee that the fund will continue to hold these stocks in the future.

The phenomenon of “buy low, sell high” occurs because, as a value style index, the CSI Cash Flow’s core screening indicator is “free cash flow rate.” When a stock’s price rises significantly, its free cash flow rate tends to decline accordingly.

Xinhua Zhongchengxin Dividend Value Index

In fact, for value indices, the “buy low, sell high” characteristic is inherent. This is not only true for the CSI Cash Flow Index but also applies to the Huafu Xinhua Zhongchengxin Dividend Value Index Fund (023746/023747) tracking the Dividend Value Index (989016).

The chart and table below show the industry weight changes and individual stock weight changes during this rebalancing of the Dividend Value Index (989016):

Data source: Wind, Zhongchengxin Index Co. Note: The weights after rebalancing are as of March 16, 2026; before rebalancing as of March 13, 2026.

The top three industries with decreased weights are Steel (-6.4%), Basic Chemicals (-3.7%), and Media (-2.3%); the top three with increased weights are Environmental Protection (+6.7%), Pharmaceuticals & Biologicals (+4.9%), and Utilities (+4.0%). Looking at stocks with weight changes greater than 0.4%, the 21 stocks with increased weights had an average gain of 2.24% during the two rebalancing periods, while the 15 stocks with decreased weights had an average gain of 13.47%.

The reason why the Dividend Value Index also exhibits a “buy low, sell high” pattern is mainly because, as stock prices rise, the dividend yield and valuation advantages decline, and volatility, Beta, and turnover rate tend to increase, leading to a decrease in its overall value factor score.

Risk Warning

Fund/stock market risks are inherent; investment should be cautious. The discussions on dividend indices, index rebalancing, etc., in this material are solely based on our company’s current research views on the securities market and related industries. Due to market uncertainties and volatility, these views may be adjusted or changed as the market evolves. This material is for investor communication purposes only and does not constitute investment advice or recommendations to any institution or individual. It does not reflect the current or future holdings of our managed funds, nor does it necessarily serve as a basis for investment decisions. No promise or guarantee of investment returns is made. Data sources include China Securities Index Co., Zhongchengxin Index Co., WIND, and publicly available information. Our company does not guarantee the accuracy or completeness of the content and is not responsible for any losses caused by reliance on this report. Investors should carefully read the relevant legal documents such as the “Fund Contract,” “Prospectus,” and “Product Summary” before purchasing, understand the fund’s risk-return characteristics, and assess whether the fund matches their risk tolerance, investment purpose, investment horizon, experience, and asset status. Investors should participate prudently based on their own risk capacity and experience.

Huafu Xinhua Zhongchengxin Dividend Value Index Fund is a stock fund closely tracking the performance of the underlying index, the Xinhua Zhongchengxin Dividend Value Index. The fund’s stock assets will constitute no less than 90% of the fund’s assets, with at least 80% invested in the index’s constituent stocks and alternative stocks, and no more than 10% invested in Hong Kong Stock Connect stocks. The fund faces specific risks related to the Hong Kong Stock Connect mechanism, including differences in investment environment, market system, trading rules, and tax policies. Huafu CSI All Share Free Cash Flow ETF is a stock fund closely tracking the CSI All Share Free Cash Flow Index, with at least 90% of assets invested in the index’s constituent stocks and alternatives, and at least 80% in non-cash assets. Huafu CSI All Share Free Cash Flow ETF Connection is an ETF-linked fund mainly investing in target ETF shares, index constituent stocks, and alternatives, with at least 90% of assets in the target ETF. Past performance of these indices does not predict future results and does not guarantee the performance of related funds. Investors should be aware of the risks associated with index fluctuations. As an index fund, deviations between the fund’s return and the index’s return may occur, and risks such as the index provider ceasing service, stocks suspending trading, being delisted, or defaulting exist. After listing, the fund will be traded on the secondary market. Although arbitrage mechanisms aim to keep ETF trading prices close to IOPV( and fund NAV), prices may differ significantly due to various factors, and investors may face premium or discount risks. Huafu Artificial Intelligence ETF Connection Fund may also experience deviations or incomplete alignment with the target ETF’s performance.

The fund manager’s risk rating for these funds is R4, suitable for investors with a risk tolerance level of C4 or above. Investment returns may fluctuate with market adjustments, and principal loss is possible. For specific risks, please refer to the relevant sections of the “Prospectus.” Investors should note that risk ratings may vary across sales channels; purchase should be based on the risk assessment and suitability matching provided by each channel. Carefully read the legal documents such as the “Fund Contract,” “Prospectus,” and “Product Summary” to understand the fund’s risk-return features and make informed decisions based on personal risk capacity. Past performance does not predict future results, and the performance of other funds managed by the fund manager does not guarantee future performance. The fund manager commits to managing and operating the fund with honesty, diligence, and integrity but does not guarantee profits or minimum returns. Due to the relatively short operation history of Chinese funds, they may not reflect all market phases. Investors are reminded of the “buyer beware” principle; after making an investment decision, risks are borne by the investor. This fund is issued and managed by Huafu Fund Management Co., Ltd., and the distributor does not assume investment, redemption, or risk management responsibilities.

During the investment process, the fund may face various risks, including market risk, management risk, technical risk, and compliance risk. A significant redemption risk is specific to open-end funds: if on a single open day, redemption requests exceed a certain proportion of the fund’s total units (10% for open-end funds, 20% for scheduled open funds, except for special products regulated by the China Securities Regulatory Commission), you may not be able to redeem all requested units promptly, or redemption payments may be delayed. You should understand the differences between regular fixed investment and lump-sum savings methods. Regular fixed investment encourages long-term, averaged-cost investing but does not eliminate inherent investment risks, nor does it guarantee returns, nor is it an equivalent alternative to savings.

The fee rates for the Cash Flow Full Index ETF Huafu product are as follows:

The fee rates for the Cash Flow Full Index ETF Huafu Linked & Huafu Xinhua Zhongchengxin Dividend Value Index products are as follows:

Please refer to the prospectus and other legal documents for detailed fee information. Actual fees are subject to the rules of the sales institutions.