Dividend Yield Funds: Only 2 Beat 10% Returns Last Year

Only two of eleven dividend yield funds managed to surpass a 10% return threshold over the past year, according to a recent market analysis. This highlights a notable performance gap within the category, with top performers significantly outstripping their peers.

The Tata Dividend Yield Fund led the category, posting a robust 16.26% return. Following closely was the LIC MF Dividend Yield Fund, which delivered 12.58% to investors during the same period.

Performance Discrepancies Detailed

• Top Performer: Tata Dividend Yield Fund at 16.26%
• Second Performer: LIC MF Dividend Yield Fund at 12.58%
• Lagging Fund 1: Sundaram Dividend Yield Fund at 1.79%
• Lagging Fund 2: UTI Dividend Yield Fund at 3.41%

Conversely, several funds struggled to generate meaningful returns. The Sundaram Dividend Yield Fund recorded a mere 1.79%, while the UTI Dividend Yield Fund achieved only 3.41%, demonstrating the broad range of outcomes.

These wide discrepancies in returns are primarily attributed to varying investment strategies employed by fund managers. Key factors influencing performance include equity allocation, the number and specific types of stocks held within portfolios, and operational expense ratios.

Key Drivers of Fund Performance

• Equity Allocation: Tata Dividend Yield Fund held 96.42% in equity, versus Sundaram’s 90.56%.
• Portfolio Diversification: Tata Fund included 77 stocks, while Sundaram held 58 stocks.
• Expense Ratios: Lower expense ratios generally correlated with better performance.
• Stock Overlap: Only 33% common stock holdings between the highest and lowest performing funds.

The limited overlap in stock holdings, approximately 33% between the highest and lowest performing funds, points to distinct stock selection approaches. This underscores how portfolio construction, sector exposure, cash allocation, and operational expenses collectively dictate performance variations across the dividend yield fund category.