In anticipation of the Federal Reserve’s upcoming interest rate decision in September, more investors are turning their attention towards dividend stocks. According to Paul Baiocchi, the chief ETF strategist at SS&C ALPS Advisors, this shift is a smart move considering the expected easing of rates by the Fed. Baiocchi pointed out that investors are transitioning from money markets and fixed income to dividend stocks, particularly those from leveraged companies that stand to benefit from a declining interest rate environment.
ALPS, the issuer of several dividend exchange-traded funds, such as the ALPS O’Shares U.S. Quality Dividend ETF (OUSA) and the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM), has seen positive growth. Compared to the S&P 500, both of these dividend ETFs are overweight in health care, financials, and industrials. Baiocchi explains that these ETFs intentionally exclude sectors like energy, real estate, and materials due to their volatility and unpredictable nature, which goes against the goal of providing drawdown avoidance for investors.
Mike Akins, the founding partner of ETF Action, sees OUSA and OUSM as defensive strategies because of the strong balance sheets of the companies within these ETFs. He highlights the increasing popularity of dividend stocks within ETFs and acknowledges the defensive stance that these stocks offer to investors. Despite the surge in popularity, Akins admits that the exact reason behind the fascination with dividends remains unclear.