In anticipation of the Federal Reserve’s upcoming interest rate decision, more investors are shifting their focus towards dividend stocks. This strategic move is backed by the belief of Paul Baiocchi, the chief ETF strategist at SS&C ALPS Advisors, who foresees the Fed easing rates. According to Baiocchi, investors are moving away from money markets and fixed income, gravitating towards leveraged companies that stand to benefit in a declining interest rate environment.
ALPS Advisors is the issuer of several dividend exchange-traded funds, including 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). Compared to the S&P 500, both dividend ETFs carry overweight positions in health care, financials, and industrials, as highlighted by Baiocchi. Conversely, they exclude energy, real estate, and materials sectors due to their perceived instability and volatility. Baiocchi emphasizes the importance of selecting dividends that are durable, growing, and well-supported by fundamentals to achieve the goal of drawdown avoidance.
Mike Akins, the founding partner of ETF Action, views the OUSA and OUSM ETFs as defensive strategies owing to the companies’ clean balance sheets. Akins also acknowledges the rising popularity of dividend stocks within the ETF category. Despite the surge in interest, Akins admits to not having a definitive explanation for the current trend towards dividends being in vogue.
As investors brace themselves for the Federal Reserve’s upcoming interest rate decision, dividend stocks are gaining traction as a viable investment option. The strategic shift towards dividend-paying companies is seen as a sound move in anticipation of potential rate cuts by the Fed. By focusing on dividends that are both sustainable and well-supported by fundamentals, investors aim to navigate market volatility and achieve drawdown avoidance. The defensive nature of dividend ETFs, such as OUSA and OUSM, further underscores the attractiveness of these investment strategies in uncertain market conditions.