The upcoming Federal Reserve’s interest rate decision in September has caught the attention of many investors, leading to a shift towards dividend stocks. Paul Baiocchi from SS&C ALPS Advisors believes that this is a wise move considering the anticipated rate cuts by the Fed. According to Baiocchi, investors are moving away from money markets and fixed income towards dividend stocks, particularly those of leveraged companies that stand to benefit from a declining interest rate environment.
ALPS ETFs and Sector Allocation
SS&C ALPS Advisors is the issuer of 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). These ETFs are overweight on sectors like health care, financials, and industrials compared to the S&P 500. Baiocchi explains that energy, real estate, and materials are excluded from these ETFs due to their volatility, which could detract from the goal of drawdown avoidance. The focus is on dividends that are durable, growing, and supported by strong fundamentals.
Defensive Strategies and Popularity
Mike Akins, the founding partner of ETF Action, views OUSA and OUSM as defensive strategies because the stocks they comprise generally have clean balance sheets. Akins also acknowledges the increasing popularity of dividend stocks in ETFs but admits he does not have a definitive explanation for this trend. The surge in popularity of dividend stocks may be attributed to their perceived stability and income generation potential.
Ultimately, the shift towards dividend stocks ahead of the Fed’s rate decision reflects investors’ anticipation of market conditions and their preference for reliable income streams. As uncertainties loom, dividend stocks offer a sense of security and potential for returns, making them an attractive option for many investors seeking stability in their portfolios.