There seems to be a growing interest among investors in dividend stocks as they await the upcoming decision by the Federal Reserve regarding interest rates. Paul Baiocchi, the chief ETF strategist at SS&C ALPS Advisors, believes that this shift in strategy is a wise move considering his prediction of the Fed easing rates. According to Baiocchi, investors are shifting away from money markets and fixed income towards dividend stocks, particularly those of leveraged companies that stand to benefit in a declining interest rate environment.
ALPS, the issuer of several dividend-focused exchange-traded funds, offers products such as 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). Baiocchi points out that compared to the S&P 500, both these dividend ETFs are overweight on sectors like health care, financials, and industrials, while excluding energy, real estate, and materials. He justifies this exclusion by referring to the latter sectors as unstable in terms of both price and fundamental volatility.
Baiocchi emphasizes the importance of selecting dividends that are not only part of the methodology but are also durable, growing, and well-supported by fundamentals. The goal of the OUSA and OUSM ETFs is to provide drawdown avoidance, which would be compromised by investing in sectors with high volatility. This strategic focus on stability and growth sets these dividend ETFs apart in the market.
Mike Akins, the founding partner of ETF Action, views OUSA and OUSM as defensive strategies due to the clean balance sheets of the stocks included in these ETFs. He notes the increasing popularity of dividend stocks in ETFs, though he remains uncertain about the exact reasons behind this surge in interest. Akins acknowledges the defensive nature of dividend stocks but refrains from making any definitive predictions about their future performance.
By observing the shifting trends in the investment landscape, particularly in relation to anticipated economic changes driven by Federal Reserve decisions, investors are adjusting their strategies to focus on dividend stocks. This shift towards stability and growth underscores the importance of selecting reliable dividend-paying companies with strong fundamentals, especially in a period of market uncertainty. asdfsadfsda