New Forward emerging markets fund utilizes the "dividend signal" strategy
Dividend-paying stocks in emerging markets tend to outperform non-dividend-paying stocks through a complete market cycle, according to new study released by Forward Management, LLC (Forward). The study suggests that the "dividend signal," a process of using dividends as a filter to help identify stocks with higher- than-average growth potential, may be even more valuable to emerging markets investors than those in developed markets, where the trend was initially identified.
"As useful as the dividend signal has been in developed markets, it may be even more valuable in emerging markets, where reliable information on companies is often harder to come by," commented Alan Reid, CEO of Forward.
Forward will use the "dividend signal" approach in its newly launched Forward Select EM Dividend Fund, which focuses on emerging markets equities. The fund's investment team, led by portfolio manager David Ruff, has been using the same approach to manage an international dividend stock portfolio for the past 12 years and a U.S. dividend stock portfolio for the past five years. The international strategy has historically made a significant strategic allocation to emerging markets equities.
Unlike many other dividend-focused portfolio managers, who typically emphasize income generation, the team at Forward seeks to deliver higher total return and lower volatility than the underlying market benchmarks. Ruff said that Forward's dividend signal strategy is applied consistently across markets, but in the case of the new emerging markets fund, the process includes an added layer of intensive fundamental analysis aimed at understanding risk factors specific to local markets.
The Forward study, titled Global Equities: Can Dividends Signal Growth?,found that historically, dividend-paying stocks have tended to outperform stocks not paying dividends in both developed and emerging markets. Even though the decade ending 12/31/2010 concluded with a bull market in which growth funds performed relatively well, equity income funds generated a cumulative asset-weighted average total return of 43.9% during that ten-year period while growth funds returned 28.1%, the study reports.
"Our findings debunk the common stereotype of dividend-paying companies as plodding and unexciting. On the contrary, history shows that companies that paid a regular cash dividend are more likely than others to be growing, dynamic enterprises," said David Ruff.
The study cites several reasons for the link between ongoing dividend payments and higher stock appreciation:
- Companies able to sustain a dividend have generally been more highly valued by investors during market downturns or periods of volatility.
- Budgeting for dividends may make corporate managers better stewards of capital.
- Cash dividends are a tangible, objective signal that is not subject to manipulation or interpretation as financial statements may be in spite of GAAP accounting standards.
The study also emphasizes that stocks with the highest dividend yields do not necessarily have the highest long-term growth potential. Building on historical research by Credit Suisse, Forward found that in 9 out of 12 global markets stocks that couple relatively high (above-median) dividend yields with low payout ratios (yearly dividend as a percentage of yearly earnings) generated the highest total returns over a 20-year period.
The Forward Select EM Dividend Fund is offered in investor, institutional, C and M share classes and is available through Pershing and Matrix Clearing.
About Forward Management, LLC
Forward Management, LLC, is a privately-held asset management firm that uses a forward-thinking, problem-solving approach to help investors and advisors navigate a shifting, uncertain investment climate. Based in San Francisco, the firm is the investment advisor to the Forward Funds. It gives investors and their advisors access to a broad spectrum of investment and asset allocation solutions, including an evolving set of alternatives to traditional, long-only investing. As of March 31, 2011, Forward Management had $5.8 billion in assets under management in a product set including mutual funds, separate account strategies, and limited partnerships. More information on Forward Management and the Forward Funds can be found at www.forwardmgmt.com.
Please consider the objectives, risks, charges and expenses carefully before investing in the fund. A prospectus with this and other information may be obtained by calling (888) 312-4100 or by visiting www.forwardfunds.com. Please read carefully before making a final investment decision.
The Forward Select EM Dividend Fund seeks to achieve high total return through capital appreciation and current income. The Fund was launched on May 1, 2011, and has a limited operating history.
There are risks involved with investing, including loss of principal. Past performance does not guarantee future results, share prices will fluctuate, and you may have a gain or loss when you redeem shares.
Foreign securities, especially emerging or frontier markets, will involve additional risks including exchange rate fluctuations, social and political instability, less liquidity, greater volatility, and less regulation. Investing in lower-rated ("high yield") debt securities involves special risks in addition to the risks associated with investments in higher-rated debt securities, including a high degree of credit risk.
Cumulative return is the aggregate amount that an investment has gained or lost over time, independent of the period of time involved.
Dividend yields are a financial ratio that shows how much a company pays out in dividends each year relative to its share price.
GAAP accounting is a common set of accounting principles, standards and procedures that companies use to compile their financial statements.
Payout ratios are the amount of earnings paid out in dividends to shareholders.
Alan Reid and David Ruff are registered representatives of ALPS Distributors, Inc.
Forward Funds are distributed by ALPS Distributors, Inc. Separately Managed Accounts and related investment advisory services are provided by Forward Management, a federally regulated Investment Advisor.
ALPS Distributors, Inc., is not affiliated with Forward Management, LLC, Kanter & Company, Pershing or Matrix Clearing.
Not FDIC Insured | No Bank Guarantee | May Lose Value
Contacts:
Kanter & Company
Justin Lavelle, 703-534-2150
