With the Federal Reserve’s interest rate decision looming in September, investors are turning their attention towards dividend stocks as a sound investment strategy. Paul Baiocchi, the chief ETF strategist at SS&C ALPS Advisors, believes that the Fed will ease rates, leading investors to move away from money markets and fixed income towards companies that may benefit from a declining interest rate environment.
ALPS offers 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). Compared to the S&P 500, both ETFs are overweight in health care, financials, and industrials, while excluding energy, real estate, and materials sectors. According to Baiocchi, these excluded sectors are considered unstable due to both price and fundamental volatility, which goes against the goal of providing drawdown avoidance.
Mike Akins, the founding partner of ETF Action, sees OUSA and OUSM as defensive strategies due to the companies’ clean balance sheets. He points out that the dividend category in ETFs has been gaining popularity, but he cannot explain the exact reason behind this trend.
Akins acknowledges the growing trend of investing in dividend stocks but remains uncertain about the underlying reasons driving this surge. This shift towards dividends is seen as a defensive play in anticipation of potential market volatility and economic uncertainty.
Investors are increasingly turning towards dividend stocks as a defensive strategy amidst the uncertainty surrounding the Federal Reserve’s interest rate decision. ALPS’ dividend ETFs provide a diversified portfolio focusing on stable sectors while avoiding industries prone to volatility. This trend reflects a cautious approach by investors looking for reliable sources of income in a potentially turbulent market environment.