A Steady Dividend ETF From O’Shares
Todd Shriber, ETF Professor , Benzinga Staff Writer
November 26, 2018 3:14pm
Weakness in the FAANG stocks and other growth and momentum names has some market observers opining about a rotation to value stocks, a group that has achieved laggard status in recent years.
Some evidence suggests that a rotation to value may be warranted. This month, the S&P 500 Value Index is up nearly 1 percent while the S&P 500 is lower by nearly the same amount.
Investors focusing on a possible resurgence by value stocks may be missing out on opportunities with quality and dividend stocks such as those featured in the O’Shares FTSE U.S. Quality Dividend ETF OUSA.
OUSA, which is up 1.55 percent this month, tracks the FTSE USA Qual/Vol/Yield 5% Capped Factor Index.
OUSA’s underlying benchmark “is designed to measure the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in the United States that meet certain market capitalization, liquidity, high quality, low volatility and dividend yield thresholds,” according to O’Shares.
Why It’s Important
Some single factor strategies like low volatility lack the ability to capture all of the upside in bull markets, but offer downside protection when stocks swoon. OUSA captured most of the market’s upside while harnessing just 64 percent of the downside, while the S&P 500 Value Index had a downside capture of nearly 100 percent, according to O’Shares data.
OUSA has relatively light exposure to some of the sectors that dominate value strategies. For example, the fund devotes about 18 percent of its combined weight to the troubled energy and financial services sectors. The ETF allocates about a quarter of its weight to the consumer discretionary and technology sectors, groups that are hallmarks of growth strategies.
Still, OUSA offers defensive positioning, as highlighted by a combined weight of over 31 percent to the consumer staples and health care sectors.
Over the past year, OUSA has outperformed the S&P 500 Value Index with lower volatility. OUSA’s trailing 12-month dividend yield of 3.08 percent is also higher than that of the S&P 500 Value Index.
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Concentration in a particular industry or sector will subject the Funds to loss due to adverse occurrences that may affect that industry or sector. The Funds may use derivatives which may involve risks different from, or greater than, those associated with more traditional investments. A Fund's emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform the market. Also, a company may reduce or eliminate its dividend after the Fund's purchase of such a company's securities. Returns on investments in foreign securities could be more volatile than, or trail the returns on, investments in U.S. securities. Exposures to foreign securities entail special risks, including political, diplomatic, economic, foreign market and trading risks. In addition, a Fund's investments in securities denominated in other currencies could decline due to changes in local currency relative to the value of the U.S. dollar, which may affect the Fund's returns. See the prospectus for specific risks regarding the Funds.
The securities of small capitalization companies are often more volatile and less liquid than the stocks of larger companies and may be more affected than other types of securities during market downturns. Compared to larger companies, small capitalization companies may have a shorter history of operations, and may have limited product lines, markets or financial resources.
Companies involved with Internet technology and e-commerce are exposed to risks associated with rapid advances in technology, obsolescence of current products and services, the finite life of patents and the constant threat of global competition and substitutes.
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