In the face of looming uncertainty surrounding the Federal Reserve’s interest rate decision in September, more investors are turning 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. Baiocchi emphasizes that investors are reallocating their assets from money markets and fixed income towards dividend stocks, particularly those of leveraged companies that stand to benefit from a declining interest rate environment.
Quality Dividend ETFs
ALPS, the issuer of multiple dividend exchange-traded funds, offers options 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). These dividend ETFs, in comparison to the S&P 500, are heavily concentrated in health care, financials, and industrials, as highlighted by Baiocchi. Furthermore, sectors such as energy, real estate, and materials are deliberately excluded due to their inherent volatility, which could detract from the goal of these ETFs to provide drawdown avoidance.
Defensive Strategies
Echoing Baiocchi’s sentiments, Mike Akins, the founding partner of ETF Action, regards OUSA and OUSM as defensive strategies owing to the strong balance sheets of the underlying stocks. Akins also notes the surge in popularity of dividend category ETFs but remains uncertain about the exact reason behind this trend. Despite lacking a definitive explanation, Akins recognizes the appeal of dividends in the current market scenario.
The growing interest in dividend stocks amidst market uncertainties reflects a strategic shift by investors seeking stability and consistent returns. The preference for dividend ETFs, such as OUSA and OUSM, underscores the demand for reliable income-generating assets in today’s financial landscape. As the market continues to navigate through unpredictable waters, dividend stocks are poised to play a significant role in investors’ portfolios as a means of hedging against volatility and capitalizing on potential market fluctuations.
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