OUSM’s Top Decile Performance Continues in August

• The ALPS | O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM) outpaced broad-based indices last month as its high-quality companies persevered market volatility with generally positive earnings and guidance, continuing OUSM’s top decile performance in the small-cap category.^{^}
  
  
• The Financials sector led OUSM’s absolute gains in August with the Health Care sector not far behind. Both sectors performed well on the back of earnings beats, guidance raises and price target upgrades due to improving macroeconomic conditions. Insurance provider, Erie Indemnity Co. (ERIE, 2.31% weight*), was the best performer in OUSM last month, rocketing 25.58% thanks to its new inclusion in the S&P MidCap 400 Index. Healthcare service provider, Encompass Health Corp. (EHC, 2.58% weight*), rose 7.59% last month after a strong Q2 earnings release, boosting its full-year earnings per share (EPS) and revenue on the back of growing demand for long-term care. Continuing the trend of earnings outperformance, National Healthcare Corp. (NHC, 1.02% weight*) gained 11.74% last month after reporting quarterly results that saw stronger revenue growth as a result of increased occupancy within the company’s skilled nursing and assisted living facilities. 
  
  
• OUSM had several high-flyers across all sectors last month, improving relative performance while markets whipsawed. H&R Block Inc. (HRB, 0.66% weight*), a tax preparation company, surged nearly 19% in August after a solid finish to their fiscal year, reporting earnings above analyst estimates on the back of strong tax preparation revenue that allowed the company to raise its dividend and repurchase shares. Similarly, Cogent Communications Holdings (CCOI, 0.51%  weight*), an internet service provider, gained over 16% in August following higher revenue that beat analyst expectations after closing a deal with T-Mobile (TMUS, not in OUSM) to purchase Sprint’s wireline assets. Lastly, media conglomerate, New York Times Co. (NYT, 0.40% weight*), rallied 8.61% after the company nearly doubled adjusted EPS forecasts, highlighting impressive digital ad revenues and digital subscriber growth.

“While economic conditions remain fluid, the current emphasis on deglobalization, operational efficiency and innovation mean smaller companies can be highly competitive in a world with lower beta-driven returns and higher interest rates.”

– John Tousley, Goldman Sachs – Global Head of Market Strategy, August 4, 2023

An Economic Rebound in the U.S. Favors Small-Caps & Quality

• While media coverage focused on large-cap artificial intelligence (AI) hype in August, quality small-caps quietly led all U.S. stocks. As projections for a soft landing scenario become more likely for the U.S., while the rest of the world digests more pronounced economic slowing, we believe U.S. small-caps are likely to continue their outperformance against U.S. large-cap stocks due to their U.S. revenue bias, margin expansion and valuation disparities: 
  
  
  • 79% U.S. revenue exposure for small-caps compared to only 61% U.S. revenue exposure for large-caps^{^}
  • 2.40% year-over-year growth in U.S. July Core PPI (Producer Price Index) is falling faster than the 4.70% year-over-year growth in U.S. July Core CPI (Consumer Price Index), implying product costs are falling faster than selling prices – a potential boost to small-cap margins
  • 60% discounted valuations on U.S. small-cap stocks relative to large-cap stocks using Price-to-Book valuations, which are historically wide 
• Broad-based small-cap ETFs tend to have roughly 25% of their holdings in non-earning companies, which is a major risk in a high interest rate environment where capital is not cheap. The ALPS | O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM) screens for quality small-cap companies with a high return on assets (ROA) that can reduce the inherent stock risk that resides in most small-cap ETFs, while also increasing the probability these companies will grow dividends over time.    

• Over the course of the last year, as markets have favored quality amidst tighter economic conditions, OUSM has exhibited better performance and less volatility than broad-based small-cap indices. 

• OUSM’s quality methodology screens for high profitability, low leverage, low volatility and superior dividend growth, leading to its top decile performance among small-caps. 

Source: Bloomberg L.P. and SS&C ALPS Advisors, cumulative performance as of 08/31/2023 and annualized performance as of 06/30/2023

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.

Total Operating Expenses: 0.48%

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

¹ The O’Shares U.S. Small-Cap Quality Dividend Index performance information reflects the blended performance of the FTSE USA Small Cap Qual/Vol/Yield 3% Capped Factor Index through 05/03/2018, the FTSE USA Small Cap ex Real Estate 2Qual/Vol/Yield 3% Capped Factor Index from 05/04/2018 through 05/31/2020 and the O’Shares U.S. Small-Cap Quality Dividend Index thereafter.

² Effective 03/31/2023, the Morningstar US Small-Cap Broad Value Extended Index replaced the Russell 2000 Value Index as the Fund’s secondary benchmark.

* Weight in OUSM as of 08/31/2023

^{^} Source: Morningstar, as of 08/31/2023

Top 10 Holdings

As of 08/31/2023, 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 securities of small capitalization companies are often more volatile and less liquid than the stocks of larger companies and may be more affected than other types of securities during market downturns. Compared to larger companies, small capitalization companies may have a shorter history of operations, and may have limited product lines, markets or financial resources.

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.

Consumer Price Index (CPI): a measure of the average change over time in the prices paid by urban consumers for a representative basket of consumer goods and services. 

FTSE USA Small Cap ex Real Estate 2Qual/Vol/Yield 3% Capped Factor Index: comprised of securities within the FTSE USA Small-Cap Index, excluding Real Estate. The index is designed to reflect the performance of three recognized equity risk factors: quality, low volatility and yield.

FTSE USA Small Cap Qual/Vol/Yield 3% Capped Factor Index: designed to reflect the performance of high quality US small-cap equities exhibiting low volatility and high dividend yields. Quality is measured by profitability and leverage. Constituents are selected and weighted based on quality, volatility and yield characteristics.

Morningstar US Small-Cap Broad Value Extended Index: designed to provide comprehensive, consistent representation of the small cap value segment of the US equity market. 

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

Producer Price Index (PPI): a measure of the average change over time in the selling prices received by domestic producers for their output. 

Russell 2000 Index: measures the performance of the small-cap segment of the US equity universe.

Russell 2000 Value Index: measures the performance of the small capitalization value sector of the US equity market.

S&P MidCap 400 Index: provides investors with a benchmark for mid-sized companies. The index is designed to measure the performance of 400 mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment.

Standard Deviation: a statistical measure that indicates the extent of deviation for a group as a whole.

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   

OUS000238  12/31/2023