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European Quality Stocks Offer Upside Amidst Global Central Bank Tightening

  • Last month, the ALPS | O’Shares Europe Quality Dividend ETF (OEUR) gained 7.20% on encouraging earnings and news within its portfolio, despite a global banking crisis hitting the Financials sector in March. While defensive sectors have rallied with the ECB and other central banks raising benchmark interest rates, quality stocks across all sectors in Europe have displayed meaningful outperformance as economic headwinds dampen future earnings for stocks with lower profitability, creating a playbook for quality to outshine other factors in 2023.

  • OEUR’s Health Care names led the portfolio gains last month, headlined by pharmaceutical manufacturer, Sanofi (SAN FP, 0.93% weight*), which rallied over 15% in March after releasing blockbuster trial data for its drug to treat pulmonary disease. Health care services provider, Coloplast A/S (COLOB DC, 0.30% weight*), also rose an impressive 13.41% in March on the heels of positive data for its male catheter that more effectively empties patient bladders. Continuing the trend of OEUR’s Health Care trial beats, Novartis AG (NOVN SW, 4.58% weight*) rallied 13.01% in March following impressive trial data for its breast cancer drug that extended patient lives without recurring tumors.

  • Quality-screened Info Tech names in OEUR stepped into the spotlight last month as well, with software company, SAP SE (SAP GR, 5.92% weight*), gaining nearly 11% in March after boosting profits and liquidity by selling its stake in Qualtrics (not in OEUR) for $12.5 billion. Despite the recent rough patch for semiconductor companies on sluggish demand, semiconductor equipment manufacturer, ASML Holding N.V. (ASML NA, 5.74% weight*), rose 9.66% last month on the heels of its high order backlog and expectations of 25% sales growth in 2023. 

  • Other notable gainers within OEUR in March included energy infrastructure provider, E. ON (EOAN GR, 2.19% weight*), which gained nearly 14% on positive analyst commentary around the company’s long-term structural growth within its energy transition initiatives. Additionally, luxury cosmetic name, L’Oreal (OR FP, 2.08% weight*), moved 12.31% higher in March after being named in a bidding war for a high-end cosmetic company (Aesop), as well as a sell-side analyst making a “catalyst call” on L’Oreal for its improving sales trends in China. Lastly, brewing company, Carlsberg A/S (CARLB DC, 0.74% weight*), rallied over 12% last month in unison with other European food and beverage stocks, as data showed retail beer sales in China had reverted back to pre-pandemic levels. 

“Europe continues to be undervalued versus its American peers at least at the index level. More broadly, Europe’s economy remains resilient, with a milder winter and fiscal support provisions.”

– Marty Dropkin, Fidelity International Head of Equities,
Asia Pacific, March 6, 2023

Quality: A Consistent Factor to Bridge the Gap between Growth and Value
  • Rebutting many market projections for a dreary 2023, European stocks finished the first quarter of 2023 with near double-digit gains, outpacing US equities as depressed valuations and better-than-expected European economic data have garnered investor attention. While sticky inflation may force the ECB’s hand to continue raising interest rates, lower energy prices – stemming from a mild European winter – and positive consumer spending trends, specifically in luxury retail spending, point to a more resilient 2023 than expected for Europe.

  • Quality-screened stocks that exhibit sound balance sheets and profitability have been the market darlings in Europe so far in 2023. OEUR has had limited exposure to the highly leveraged European Financials sector that hit many broad-based European indices last month, due to a global banking crisis. While growth stocks may continue to face valuation pressures on higher global interest rates, and value stocks may continue to face valuation pressures from recessionary risks, quality stocks with steady dividend streams tend to thrive in this environment where fundamentals matter.   20230331-chart-01
  • Since Europe’s valuation low late last year, Quality has outpaced Growth and Value factors, rallying ~33% and driving Europe’s recent gains. 

  • The ALPS | O’Shares Europe Quality Dividend ETF (OEUR) yields 2.00% and is overweight quality-screened stocks in sectors showing positive growth trends (Industrials, Healthcare, Consumer Discretionary, Information Technology), which have led to outperformance. 

Performance Summary
  1 Month YTD 1 Y 3 Y
ALPS | O’Shares Europe Quality Dividend ETF (OEUR) 7.20% 14.26% 5.45% 43.63%
O’Shares Europe Quality Dividend Index1 7.21% 14.40% 5.98% 49.89%
EURO STOXX 50 Net Return USD Index 4.45% 16.21% 10.81% 63.61%

Source: Bloomberg L.P., as of 03/31/2023

Performance data quoted represents past performance. Past performance is no guarantee of future results so that shares, when redeemed, may be worth more or less than their original cost. The investment return and principal value will fluctuate. Current performance may be higher or lower than the performance quoted. For current month-end performance call 1-866-759-5679 or visit www.alpsfunds.com. Performance includes reinvested distributions and capital gains.

For standardized performance please click here.

Performance data prior to 06/21/2022 reflects the performance of the Fund as managed under the OSI ETF Trust.

1 The O’Shares Europe Quality Dividend Index performance information reflects the blended performance of the FTSE Developed Europe Qual/Vol/Yield 5% Capped Factor Index through 05/31/2020 and the O’Shares Europe Quality Dividend Index thereafter.

* Weight in OEUR as of 03/31/2023


Top 10 Holdings

SAP SE 5.92%   Nestle SA 4.36%
LVMH Moet Hennessy Louis Vuitton SE 5.78%   Schneider Electric SE     3.52%
ASML Holding NV 5.74%   3i Group PLC 3.13%
Novo Nordisk A/S 5.30%   Roche Holding AG 3.10%
Novartis AG 4.58%   Bayerische Motoren Werke AG 2.95%

As of 03/31/2023, subject to change

Important Disclosures & Definitions

An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus containing this and other information, call 1-866-759-5679 or visit www.alpsfunds.com. Read the prospectus carefully before investing.

Shares are not individually redeemable. Investors buy and sell shares on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 5,000, 25,000 or 50,000 shares.

Performance data quoted represents past performance. Past performance is no guarantee of future results; current performance may be higher or lower than performance quoted.

All investments are subject to risks, including the loss of money and the possible loss of the entire principal amount invested. Additional information regarding the risks of this investment is available in the prospectus.

Effective 06/17/2022, the O’Shares Europe Quality Dividend ETF reorganized into the ALPS | O’Shares Europe Quality Dividend ETF.

Concentration in a particular industry or sector will subject the Fund to loss due to adverse occurrences that may affect that industry or sector. The Fund may use derivatives which may involve risks different from, or greater than, those associated with more traditional investments. A Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform the market. Also, a company may reduce or eliminate its dividend after the Fund’s purchase of such a company’s securities. Returns on investments in foreign securities could be more volatile than, or trail the returns on, investments in US securities. Exposures to foreign securities entail special risks, including political, diplomatic, economic, foreign market and trading risks. In addition, a Fund’s investments in securities denominated in other currencies could decline due to changes in local currency relative to the value of the US dollar, which may affect the Fund’s returns.

The Fund employs a “passive management” - or indexing - investment approach and seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index. Unlike many investment companies, the Fund is not “actively” managed. Therefore, it would not necessarily sell or buy a security unless that security is removed from or added to the underlying index, respectively.

EURO STOXX 50 Net Return USD Index: represents the performance of the 50 largest companies among the 20 supersectors in terms of free-float market cap in Eurozone countries.

FTSE Developed Europe Qual/Vol/Yield 5% Capped Factor Index: designed to measure the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in Europe that meet certain requirements for market capitalization, liquidity, high quality, low volatility and dividend yield.

O’Shares Europe Quality Dividend Index: designed to reflect the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in Europe that meet certain market capitalization, liquidity, high quality, low volatility and high dividend yield thresholds. The quality and low volatility requirements are designed to reduce exposure to high dividend equities that have experienced large price declines.

One may not invest directly in an index.

ALPS Advisors, Inc. and ALPS Portfolio Solutions Distributor, Inc., affiliated entities, are unaffiliated with O’Shares Investments.

ALPS Portfolio Solutions Distributor, Inc. is the distributor for the Fund.

Not FDIC Insured • No Bank Guarantee • May Lose Value

OUS000187  07/31/2023

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