With the impending Federal Reserve interest rate decision in September, more investors are shifting towards dividend stocks as a sound investment strategy. Paul Baiocchi, the chief ETF strategist at SS&C ALPS Advisors, believes that this move is justified due to his prediction of the Fed easing rates. According to Baiocchi, investors are reallocating their money from money markets and fixed income towards dividend-paying stocks. Particularly, there is a growing interest in leveraged companies that stand to benefit from a declining interest rate environment.
Focus on Quality Dividend ETFs
ALPS is known for issuing several dividend exchange-traded funds, including the ALPS O’Shares U.S. Quality Dividend ETF (OUSA) and its small-cap counterpart, the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM). Unlike the S&P 500, both these dividend ETFs have a heavier exposure to sectors like health care, financials, and industrials. Baiocchi emphasizes that these ETFs exclude sectors like energy, real estate, and materials, which are considered volatile and unpredictable. The goal of OUSA and OUSM is to provide drawdown avoidance by focusing on durable dividends that have been consistently growing and are well supported by fundamentals.
Defensive Investment Perspective
Mike Akins, the founding partner of ETF Action, views OUSA and OUSM as defensive strategies due to the companies’ clean balance sheets. He highlights the increasing popularity of the dividend category in ETFs but acknowledges that the rationale behind this trend remains unclear. Akins does not possess a crystal ball to explain the sudden surge in interest towards dividend stocks.