IDOG: Wagging Tail Risk and Volatility with its Deep Value Portfolio

• Last month, the ALPS International Sector Dividend Dogs ETF (IDOG) outperformed broad international and US indices on positive news catalysts and attractive relative valuations as volatility gripped global markets. While September and October generally bring a seasonally weak period for stocks, international dividend-focused equities tend to exhibit more defensive traits during periods of economic and market weakness with their steadier cash flows. 
  
  
• IDOG’s significant overweight to Japan (18.20% weight*) has been a key driver of the fund's relative outperformance year-to-date and in September. Japanese energy refiner, ENEOS Holdings, Inc. (5020 JP, 2.04% weight*), surged over 7% in September following an International Energy Agency (IEA) report that raised concerns over a significant energy supply shortfall in the coming months as OPEC+ supply cuts has propelled crude oil prices to over $90/barrel. Japanese enterprise technology provider, NEC Corp. (6701 JP, 2.05% weight*), rose 5.67% last month on the back of positive commentary from analysts surrounding the company’s integration of artificial intelligence (AI) into its submarine-cable business. Japan Tobacco Inc. (2914 JP, 2.12% weight*) also gained over 5% in September after filing a new drug application for its plaque psoriasis drug following the release of positive Phase III results. 
  
  
• Sector attribution within IDOG saw Communication Services and Energy names lead in September. Telecom service provider, Telenor ASA (TEL NO, 2.18% weight*), jumped nearly 7% on its acquisition of Swedish 5G telecom licenses and positive analyst commentary on its growing cash flow generation. Similarly, global communication provider, Vodafone Group PLC (VOD LN, 2.06% weight*), returned 1.08% last month after regulators in Germany proposed extending telecom companies’ spectrum rights for five years, potentially reducing competition risks for Vodafone. IDOG’s Energy allocation (10.01% weight*) also rallied as global crude oil rose nearly 9% during the month with Eni SpA (ENI IM, 2.04% weight*) gaining nearly 6% after inking a 20-year contract to produce 2.4 million metric tons of liquefied natural gas (LNG) annually in the Republic of Congo. 

“Those who prefer to stick with US stocks, or who have let their foreign allocations dwindle after years of international underperformance, may be missing out on more than half the global market … and the returning strength of foreign stocks, which are having their moment after years of underperformance compared with US stocks.”

– Charles Schwab Quarterly Market Outlook, September 20, 2023

Dividends and Valuations Matter in International Developed Equities 

• As inflationary pressures continue to ease across the globe, although still remaining too elevated for global central banks to come off their “higher for longer” mantra, investing in steady cash-flowing companies with sustainable dividends can help minimize market volatility. The “Magnificent Seven” have driven YTD gains in US stocks but, as federal governments attack those mega-cap companies with anti-competitive lawsuits, investors should prepare for a swift rotation out of those behemoths and into companies that can out-earn Treasury yields. With the US dollar rallying over 3% so far in the third quarter, exports by international companies have become more competitively priced, which is supportive of their fundamentals. 
  
  
• With US stock valuations remaining disproportionately elevated and expensive relative to developed international stocks, international value stocks benefit from even cheaper relative valuations and attractive yields. The ALPS International Sector Dividend Dogs ETF (IDOG) provides exposures to deep-value international names with overweights to export-driven cyclical sectors that have a better ability to hedge against higher rates and inflation. IDOG’s holdings, for example, are expected to grow revenues by 5.2% in Q4, which is supportive of its elevated trailing twelve month (TTM) dividend yield of 5.0% and makes its Price/Earnings (P/E) multiple of 8.3x appear very attractive relative to much more expensive US markets. 

• With higher-yielding, deep value stocks in international developed markets picking up steam in the second half of the year, IDOG has seen 185 basis points (bps) of outperformance over the S&P 500 Index and 259 bps of outperformance over developed international stocks as referenced by the MSCI World ex USA Index. 
  
  
• IDOG's holdings are primed for a reversion to their historical mean after tough sledding in recent years. IDOG’s P/E relative to the S&P 500 Index currently exhibits a 63% discount, compared to the MSCI World ex USA index stock P/E discount of 37%.

Source: Bloomberg L.P. and SS&C ALPS Advisors, as of 09/30/2023

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.

Market Price is based on the midpoint of the bid/ask spread at 4 p.m. ET and does not represent the returns an investor would receive if shares were traded at other times.

Fund inception date: 06/27/2013

Total Operating Expenses: 0.50%

* Weight in IDOG as of 09/30/2023

Top 10 Holdings

As of 09/30/2023, 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 of ETFs are bought and sold at market price (not NAV) and are not individually redeemable.

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.

The Fund is subject to the additional risks associated with concentrating its investments in companies in the market sector.

Diversification does not eliminate the risk of experiencing investment losses.

The Fund’s investments in non-US issuers may involve unique risks compared to investing in securities of US issuers, including, among others, less liquidity generally, greater market volatility than US securities and less complete financial information than for US issuers. In addition, adverse political, economic or social developments could undermine the value of the Fund’s investments or prevent the Fund from realizing the full value of its investments. Finally, the value of the currency of the country in which the Fund has invested could decline relative to the value of the US dollar, which may affect the value of the investment to US investors. 

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.

Basis Point (bps): a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.

Price/Earnings (P/E) Ratio: a valuation ratio of a company's current share price compared to its per-share earnings.

Trailing Twelve Month Yield: refers to the percentage of income a portfolio has returned to investors over the last 12 months.

Morningstar Developed Markets ex-North America Index: measures the performance of companies in developed markets ex-North America. It covers approximately 97% of the full market capitalization in the Developed Markets ex-North America. 

MSCI World ex USA Index: captures large- and mid-cap representation across 22 of 23 Developed Markets (DM) countries excluding the United States. With 885 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

S&P 500 Index: widely regarded as the best single gauge of large-cap US equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization. 

S-Network International Sector Dividend Dogs Index (IDOGX): a portfolio of stocks derived from a universe of mainly large capitalization stocks domiciled in developed markets outside the Americas (the “S-Network Developed Market (ex NA) Index”). The IDOGX methodology selects the five stocks in each of the ten GICS sectors that make up the universe which offer the highest dividend yields as of the last trading day of November. The fifty stocks that are selected for inclusion in the portfolio are equally weighted. 

One may not invest directly in an index.

ALPS Advisors, Inc. is affiliated with ALPS Portfolio Solutions Distributor, Inc.

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

Not FDIC Insured • No Bank Guarantee • May Lose Value

DOG001357  01/31/2024