How well did the Philippine Stock Exchange index (PSEi) do in 2024? It reached a high of +17.1% in mid-October, before dropping to a modest +1.2% return (+4.1% if you include dividends).

You may think that’s probably the norm. Then again, some funds did much better. Take, for example, the Metrobank Metro High Dividend Yield Unit Paying Fund. In 2024, the fund made +21.1% or almost 18 times the market’s return. Some others performed similarly.

Let’s examine how and why.

The 2024 backdrop

Macroeconomic data and corporate performance play a large role in shaping strategies. These factors help investors build portfolios that can weather market volatility so they come out ahead.

2024 presented a strong case for strong equity performance from multiple angles. Inflation looked to be under control with subsiding external risks, such as cooling global energy prices, and internal supports, such as rice tariff reduction.

Earnings growth also continued at a faster clip than pre-pandemic trends. Unfortunately, with concerns on US dollar exceptionalism, all of this is water under the bridge.

The shifting conditions called for a measured approach that balances both quality and growth. In this volatile environment, we saw defensive sectors such as telecommunications, power and utilities, and banks outperform.

Quality, sustainability, and visibility

Investment professionals rely on a comprehensive set of indicators to guide their allocation decisions. We monitor interest rate trends, inflation rates, and corporate earnings growth to identify emerging opportunities.

Rather than diminishing returns, proper diversification across sectors proved crucial in mitigating downside risks. This approach helped maintain performance during periods of market volatility.

Perhaps most critically, the high dividend approach values balance sheet quality, sustainability of cashflow generation, and visibility of sources of earnings growth. This approach excluded sectors with deteriorating outlooks such as food manufacturers and real estate.

Dividend yield sustainability is a bottom line that captures this best, as it helps distinguish between companies offering temporarily high yields (because of bombed out prices) and those with sustainable businesses and payouts.

Flexible fund choice

Combined with careful timing of the market, choosing the right strategy can help optimize returns while managing risks effectively. When the macroeconomic outlook shifts or sectors become overvalued, your strategy must be flexible too.

The lesson from 2024 is simple but fundamental. Equity investors can get returns from two sources – price appreciation or dividends. When everything continues to be undervalued and strong corporate fundamentals fail to reflect in share prices, investors should shift gears and focus on where cashflows are appreciated.

A strong portfolio that weathers the storm – responsive to markets while staying grounded in fundamentals – is what turns average returns into exceptional ones.

(Ready to explore dividend-paying investment opportunities? Please note that returns, including dividends, are not guaranteed and the value of your investment may fluctuate depending on market conditions. You may reach out to your relationship manager or investment specialist who can help you understand the risks and develop a strategy tailored to your financial goals. Not yet a client? Please sign up here or go to any Metrobank branch.)

ELAINE BUDAY-PAISO heads the Pooled Funds Management Department of the Trust Banking Group of Metrobank. She has been a part of the Trust and Investments Division of different institutions for more than 14 years as an investment or portfolio manager and trade execution officer. Outside of the office, she enjoys quality time with her husband and their energetic 4-year-old son.

EMUEL OLIMPO is the Head of Equities for Metrobank Trust Banking Group. He formulates strategies for the local market across a broad set of mandates from high-net-worth individual and institutional clients, as well as the bank’s UITF portfolios. He covers the consumer and real estate sectors. Emuel holds a BS in Applied Corporate Management from De La Salle University – Manila. He’s an avid cyclist out and about on weekends, an upstart runner on weekdays, and an enthusiastic gamer the rest of the time.