Worried about a top-heavy S&P 500? You’re not alone – concentration risk is a key theme for investors and market watchers right now. The S&P 500, up 16.3% YTD, continues to offer a nice investment opportunity, but a significant over-reliance on just a few tech names creates some serious risk. Investors and advisors may want to consider limiting that risk by adding a quality dividend ETF like OUSM to their portfolio.
Just ten firms, led by Apple (AAPL), can claim responsibility for more than 80% of the S&P 500’s appreciation this year. Along with names like Eli Lilly (LLY) and Nvidia (NVDA), a blow to that tech-heavy group of ten would do significant damage to many portfolios. Rather than cut out the S&P 500, however, investors can instead look to diversify away from concentration risk with a quality dividend ETF.
The Concentration Risk Case for a Quality Dividend ETF
Dividends have grown in popularity as a factor of late in part thanks to this broader rotation. Dividends can provide a potent indicator of a company’s overall health, and useful information in an uncertain environment. As the lagging impact of rising rates starts to impact the overall economy, firms on uncertain footing may struggle. Refinancing, for example, could take its toll on ill-positioned companies. Those with dividends, in turn, may be healthier already and better placed to resist.
See more: “Inflation Cools, Eye Small-Cap Dividend ETF OUSM“
Investors looking outside the S&P 500 to diversify, then, may want to consider the ALPS O’Shares US Small-Cap Quality Dividend ETF (OUSM). OUSM tracks the O’Shares US Small-Cap Quality Dividend Index, investing in U.S. small-cap stocks weighted for quality, low volatility, high dividend yield, and dividend quality. It considers factors like EBITDA, trailing five-year weekly volatility, and dividend yield and quality in making those allocations.
Charging 48 basis points (bps), OUSM has returned 8.6% YTD and 13.7% over one year, outperforming its ETF Database Category and Factset Segment averages. The quality dividend ETF also offers a 2.1% annual dividend yield. Taken together, investors looking to diversify away from concentration risk may want to consider OUSM.
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