In anticipation of the Federal Reserve’s upcoming interest rate decision in September, more investors are turning their attention towards dividend stocks. Paul Baiocchi from SS&C ALPS Advisors believes this is a wise move, as he predicts that the Fed will be lowering rates. Baiocchi, who serves as the chief ETF strategist, explained to CNBC’s “ETF Edge” that investors are moving away from money markets and fixed income, and are instead leaning towards companies with high leverage that could benefit from a decreasing interest rate environment.
ALPS, the issuer of multiple 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), is seeing a shift towards these types of investments. Baiocchi mentioned that compared to the S&P 500, both of these ETFs hold higher weightings in health care, financials, and industrials while excluding energy, real estate, and materials. According to Baiocchi, these three sectors are considered to be highly volatile and are not ideal for achieving drawdown avoidance, which is a key objective of OUSA and OUSM.
Mike Akins, the founding partner of ETF Action, views OUSA and OUSM as defensive investment strategies due to the companies included in the ETFs typically having strong balance sheets. Akins also noted the significant surge in popularity of dividend-based categories within ETFs, but he admitted that the exact reason for this trend remains unclear. Akins emphasized the importance of investing in dividends that are stable, growing, and are supported by strong fundamental metrics.
The current market climate has seen a growing interest in dividend stocks ahead of the Federal Reserve’s impending rate decision. Investors are adjusting their portfolios to include dividend ETFs like OUSA and OUSM, which prioritize quality and stability. This shift in focus towards dividend stocks highlights investors’ desire for reliable income streams in uncertain economic times.
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