U.S. Dividend Funds Receive Huge Inflows As Investors Switch Out Of Bonds

• U.S. investors are snapping up funds that invest in dividend-paying stocks as they search for stable income from alternatives to bond markets, which are being roiled by the prospect of rate rises. According to Refinitiv Lipper, investors bought $6.9Bn in U.S. dividend funds in January, the highest net purchases since October 2006. The Schwab US Dividend Equity ETF and SPDR S&P Dividend ETF led inflows, receiving about $1.7Bn each last month, while First Trust Rising Dividend Achievers ETF obtained $1.0Bn. 
• There has been elevated volatility in global equity markets this year on concerns over higher yields and inflation levels, which tend to squeeze corporate profit margins. Dividend funds are seen as safe and offering some stability in that scenario, as they hold well-established companies that have better pricing power and a track record of providing stable income. 
• Dividend funds' higher inflows were also due to the recent investor shift towards what is called value stocks, and away from the growth stocks, the latter referring to equities with higher potential which had outperformed during the initial rapid recovery from the coronavirus pandemic. 
• Economists predict moderate growth this year, prompting investors to look back at stocks trading at affordable levels, or value stocks, which often also offer higher dividends. Sectors such as energy and banks, which have high dividend yields, are expected to enjoy revenue growth this year, benefitting from higher interest rates and inflation levels.

(Source: Reuters)