Investors seem to be shifting their focus to dividend stocks as the Federal Reserve prepares to make its interest rate decision in September. According to Paul Baiocchi from SS&C ALPS Advisors, this move is a wise one due to the anticipated rate cuts by the Fed. Baiocchi believes that investors are making this shift not only from money markets and fixed income but also towards leveraged companies that stand to benefit from a potential decrease in interest rates.
ALPS Dividend ETFs
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, as outlined by Baiocchi, are overweight in the health care, financials, and industrials sectors when compared to the S&P 500. Notably, they exclude energy, real estate, and materials sectors, which Baiocchi describes as highly volatile segments in the market. He emphasizes the importance of selecting dividend stocks that are not only reliable but also steadily growing and well-backed by strong fundamentals to achieve drawdown avoidance.
Defensive Strategies
Mike Akins, the founding partner of ETF Action, categorizes OUSA and OUSM as defensive strategies due to the clean balance sheets of the stocks they include. Akins also points out the increasing popularity of dividend categories within ETFs, indicating a growing trend among investors towards dividend-yielding assets. Despite the surge in interest, Akins admits that the specific reasons behind the current fascination with dividends remain unclear.
This analysis highlights the current shift towards dividend stocks in anticipation of the Federal Reserve’s upcoming interest rate decision. Investors are gravitating towards dividend-focused ETFs that offer stability, growth, and defensive positioning in uncertain market conditions. With a renewed interest in dividend-paying companies, it is evident that investors are seeking reliable sources of income and security amidst economic uncertainties.