In light of the upcoming Federal Reserve’s interest rate decision, more investors are turning their attention to dividend stocks. Paul Baiocchi, the chief ETF strategist at SS&C ALPS Advisors, suggests that this move is a wise strategy given his prediction of the Fed easing rates. According to Baiocchi, investors are transitioning away from money markets and fixed income towards dividends. Specifically, he highlights the shift towards leveraged companies that stand to benefit from a declining interest rate environment.
ALPS, the issuer of several dividend exchange-traded funds, has positioned itself to cater to this growing interest in dividend stocks. 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), are among the offerings from ALPS. Both ETFs are overweight in sectors such as health care, financials, and industrials relative to the S&P 500. This strategic allocation is a reflection of Baiocchi’s view on sector stability and volatility.
Baiocchi excludes sectors such as energy, real estate, and materials from the dividend ETFs, citing them as among the most unstable sectors in the market. He emphasizes the importance of avoiding sectors with price and fundamental volatility, as this could undermine the goal of drawdown avoidance that OUSA and OUSM aim to achieve. For Baiocchi, the focus is on sustainable and growing dividends that are well supported by fundamentals.
Mike Akins, the founding partner of ETF Action, views OUSA and OUSM as defensive strategies due to the companies’ clean balance sheets. Akins underscores the rising popularity of the dividend category in ETFs but admits to not having a clear explanation for the current trend towards dividends. Despite the uncertainty surrounding the surge in dividend stocks, Akins recognizes the defensive appeal of clean balance sheets and steady dividends in a potentially volatile market environment.