- Last month, the ALPS | O’Shares U.S. Quality Dividend ETF (OUSA) outperformed broader U.S. markets as bond yields and the dollar surged, giving way to a rise in market volatility. OUSA’s underweight to lower-quality cyclical sectors, including Energy and Materials, with a focus on high-quality dividend-growing companies, led to a smaller drawdown in October relative to the S&P 500.
- OUSA’s defensive sectors led the charge last month, with Consumer Staples name, Dollar General Corp. (DG, 0.11% weight*), rising 13.15% on the return of the company’s former CEO to lead operations. OUSA Utilities name, NextEra Energy, Inc. (NEE, 1.76% weight*), rallied nearly 2% in October after the world’s largest producer of solar and wind power posted earnings above analyst estimates with a strong backlog of projects. Health Care insurer, The Cigna Group (CI, 0.48% weight*), also jumped over 8% last month after releasing plans to expand its 2024 medical advantage plans in a push to grow revenues and margins.
- OUSA’s quality exposure shined with strong earnings across all sectors. Telecom provider, Verizon Communications, Inc. (VZ, 4.35% weight*), gained 10.73% last month following its better-than-expected Q3 earnings thanks to healthy subscriber additions. Meanwhile, mega-cap tech leader, Microsoft Corp. (MSFT, 5.39% weight*), surged over 7% in October on the back of its fiscal Q1 earnings that showed a 24% growth in corporate cloud revenue. Lastly, athletic retailer, NIKE, Inc. (NKE, 1.16% weight*), advanced nearly 8% last month on a follow-on rally after the company’s positive earnings results at the end of September in which its China sales and store growth continue to outpace analyst estimates.
“The key is to lean into quality – profitability, earnings growth, free cash flow, lower leverage – across all investments going forward … the weakness due to macro uncertainty has created a number of opportunities, and selectivity matters more than ever.”
– Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management, October 23, 2023
Scared of the Market? Rest Easy by Owning Quality Stocks
- With over half of S&P companies reporting Q3 results so far, earnings growth is coming in at 2.7% year-over-year, which will mark the first quarter of year-over-year earnings growth reported by S&P 500 companies since Q3 2022, per FactSet. While Q3 earnings appear to show broad rises in earnings per share (EPS), lower-quality cyclical sectors, including Energy and Materials, are reporting year-over-year declines in EPS with punishing share price declines not seen since 2017 on earnings misses.
- The ALPS | O’Shares U.S. Quality Dividend ETF (OUSA) excludes the Energy and Materials sectors due to their cyclicality and unstable returns. The Fund’s holdings are screened for profitability, low volatility, dividend growth and low leverage to help better manage through any market drawdowns. With a trailing twelve month Price/Earnings ratio of 18x vs. 20.6x for the S&P 500 Index, OUSA offers investors a high-quality portfolio at a lower valuation than the S&P 500 – a prudent investment for an uncertain 2024.
- Following a bottom in relative underperformance against broader markets, quality stocks historically outperform the S&P 500 by an average of 174 basis points (bps) on a 1-year forward basis with roughly 70bps of annualized outperformance over the past two decades.
- Importantly, earnings growth is a key factor of expected future returns. OUSA’s 12-month estimated EPS growth of 6.83% outpaces the S&P 500’s estimated EPS growth of 5.12%, a result of OUSA’s quality-focused methodology.
Performance Summary
| Cumulative | Annualized |
|||||||
| 1 M | YTD | 1 Y | 3 Y | 1 Y | 3 Y | 5 Y | SI | |
| OUSA - NAV (Net Asset Value) | -1.00% | 1.61% | 5.02% | 27.19% | 5.02% | 8.34% | 7.90% | 8.71% |
| OUSA - Market Price | -0.97% | 1.71% | 5.02% | 27.08% | 5.02% | 8.31% | 7.89% | 8.71% |
| O’Shares U.S. Quality Dividend Index - TR1 | -0.96% | 2.05% | 5.56% | 29.12% | 5.56% | 8.89% | 11.12% | 11.67% |
| Morningstar US Large-Mid Cap Broad Value Index - TR2 | -2.97% | 1.10% | 2.82% | 39.83% | 2.82% | 11.81% | 8.44% | 8.76% |
| Russell 1000 Value Index - TR | -3.53% | -1.82% | 0.10% | 33.76% | 0.10% | 10.17% | 6.67% | 6.81% |
Source: Bloomberg L.P. and SS&C ALPS Advisors, cumulative performance as of 10/31/2023 and annualized performance 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.
Performance data prior to 06/21/2022 reflects the performance of the Fund as managed under the OSI ETF Trust.
Fund inception date: 07/14/2015, date reflects the commencement of investment operations.
1 The O’Shares U.S. Quality Dividend Index performance information reflects the blended performance of the FTSE USA Qual/Vol/Yield Factor 5% Capped Index through 05/31/2020 and the O’Shares U.S. Quality Dividend Index thereafter.
2 Effective 03/31/2023, the Morningstar US Large-Mid Cap Broad Value Index replaced the Russell 1000 Value Index as the Fund's secondary benchmark.
Total Operating Expenses: 0.48%
* Weight in OUSA as of 10/31/2023
Top 10 Holdings
| Microsoft Corp | 5.39% | JPMorgan Chase & Co | 3.65% | |
| Apple Inc | 5.06% | Mastercard Inc | 3.19% | |
| Comcast Corp | 4.60% | UnitedHealth Group Inc | 3.14% | |
| Verizon Communications Inc | 4.35% | Home Depot Inc/The | 3.10% | |
| Visa Inc | 3.97% | Eli Lilly & Co | 2.92% |
As of 10/31/2023, 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 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.
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.
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.
FTSE USA Qual/Vol/Yield Factor 5% Capped Index: designed to measure the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in the United States that meet certain requirements for market capitalization, liquidity, high quality, low volatility and dividend yield.
Morningstar US Large-Mid Cap Broad Value Index: designed to provide comprehensive, consistent representation of the large-mid cap value segment of the US equity market.
Price/Earnings (P/E) Ratio: a valuation ratio of a company's current share price compared to its per-share earnings.
MSCI USA Sector Neutral Quality Index: captures large and mid-cap representation across the US equity markets. The index
aims to capture the performance of securities that exhibit stronger quality characteristics relative to their peers within the same GICS sector.
O’Shares U.S. Quality Dividend Index: designed to measure the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in the United States that meet certain market capitalization, liquidity, high quality, low volatility and dividend yield thresholds. The high quality and low volatility requirements are designed to reduce exposure to high dividend equities that have experienced large price declines.
Russell 1000 Value Index: measures the performance of the large-cap value segment of the US equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.
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.
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
OUS000266 02/29/2024
