In anticipation of the Federal Reserve’s upcoming interest rate decision in September, more and more investors are turning their attention towards dividend stocks. Paul Baiocchi of SS&C ALPS Advisors believes that this is a wise move, especially with his prediction of the Fed easing rates. He notes that investors are shifting away from money markets and fixed income, and are instead looking towards leveraged companies that could benefit from a declining interest rate environment.
ALPS is the issuer of several dividend exchange-traded funds, including the ALPS O’Shares U.S. Quality Dividend ETF (OUSA) and the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM). Baiocchi highlights that compared to the S&P 500, both of these dividend ETFs have an overweight position in health care, financials, and industrials. Energy, real estate, and materials are excluded from the ETFs as they are deemed as unstable sectors in the market due to their price and fundamental volatility.
Baiocchi emphasizes that the primary objective of the OUSA and OUSM ETFs is drawdown avoidance. This means that the focus is on providing dividends that are not only part of the methodology but are durable, growing, and well-supported by fundamentals. By excluding sectors with high volatility, the ETFs aim to maintain stability in returns for investors.
Mike Akins, founding partner of ETF Action, sees OUSA and OUSM as defensive strategies due to the clean balance sheets of the stocks within these ETFs. He also acknowledges the rising popularity of the dividend category in ETFs but admits that he does not have a crystal ball to explain exactly why dividends have become so fashionable in the current market environment.